The world’s priciest office market is driven by two types of demand — from cost-conscious multinationals, and from monied mainland firms, according to Neil Anderson, Head of Office Space at Hongkong Land, whose company owns Jardine House and the Exchange Square complex, as well as several other prime buildings in the city’s Central business district.
“Mainland Chinese demand doesn’t really care too much about anything other than being in the right building,” Anderson said during a panel discussion at the ULI Asia Pacific Summit in Hong Kong on Tuesday. “It is label-driven — they’ve got to be in the best building, the highest floor, sea view is a must. They will pay whatever it takes.”
Speaking at the annual event held by the Urban Land Institute, an industry nonprofit, Anderson predicted that the office markets in global financial centres like New York and London will see a similar trend of Chinese tenants leasing large amounts of space in five years’ time.
Hongkong Land Checks up on Mainland Firms
Spending power alone does not guarantee a spot in Hongkong Land’s prestigious office portfolio, which is the largest in Central and includes key properties such as The Landmark, Jardine House, Prince’s Building and Exchange Square.
The executive at the Singapore-listed Hong Kong developer said the company gauges potential occupiers with an eye to building a collaborative tenant community. “The tenant mix is critical on a long-term basis — you never know what is going to happen tomorrow if the mainland companies decide that Hong Kong is not for them and go back to Shanghai, then we are left high and dry if we take on too much risk,” Anderson said.
Hongkong Land has performed strict due diligence on prospective tenants from mainland China over the past two to three years, Anderson remarked to Mingtiandi on the sidelines of the panel. The landlord has declined a number of private companies from the mainland because of their lack of transparency, he added.
Hong Kong as China’s Gateway to the World
Mainland demand for office space in Hong Kong is fuelled by Chinese companies’ “going-out” strategy, with firms coming into the city to set up a base and file IPOs. This creates an “outward investment centre” for Hong Kong, according to Anderson.
Rival office landlord Swire Properties also sees the city’s unique value to mainland firms as a driver of office demand. “Hong Kong was defined as the world’s gateway to China. Now I think the whole role has reversed. It is China’s gateway to the world,” said Don Taylor, Director of Office at Swire Properties during the panel session.
“I think demand from PRC companies is likely to remain fairly robust,” he added.
Mainland Companies Take Up Space, Push up Rents
For the time being, mainland companies continue to crowd into Central, the world’s costliest business district. They took up 49 percent of Central’s new office lettings in 2017, as compared to just 19 percent five years earlier, according to data from property consultancy JLL. The trend continues unabated this year, as mainland banking and financial firms accounted for 76 percent of new lettings in Central this past April.
“Rents in Central are poised to surge ahead as mainland Chinese companies show no signs of slowing their expansion and there are some large requirements active in a tight vacancy market,” said Alex Barnes, Head of Markets at JLL in a note published in late April.
Among the Chinese corporates driving absorption in Central is Beijing-based Huaxia Bank, which leased 14,000 square feet (1,300 square metres) at Two IFC in April to accommodate its expansion needs. Investment bank Guotai Junan took up 10,100 square feet at Man Yee Building on Des Voeux Rd Central in the following month.
Average grade A office rent in Central grew five percent year-on-year in the first quarter of 2018, according to brokerage Colliers International.