With central banks growing more cautious on liquidity and political controversies making executives tread lightly, Hong Kong’s office market has been quiet so far this year. At until last week, when a mainland finance firm reportedly leased an office in Central for HK$225 ($28.66) per square foot per month.
The mainland private equity firm, which goes by Kai Tak Investment (大錦永銀（香港）控股集團有限公司) is leasing 14,773 square feet (1,372 square metres) on the 58th floor of the Cheung Kong Center on Queen’s Road at a near record price per square foot. The monthly value of the lease is HK$3.32 million per month, according to an account in the Hong Kong Economic Times, which reported that transaction on Friday.
The lease comes despite lower levels of rental activity in Hong Kong during the first two months of this year, and allows Kai Tak Investment to rub shoulders with some of the biggest names in global finance, including Goldman Sachs, Bank of America Merrill Lynch and Blackrock, as its executives and clients ride the lifts in the landmark office building.
Matching a Record Rent Level
On a cost per unit of area, the Kai Tak Investment lease is equal to the HK$225 per square foot that cryptocurrency trading platform BitMEX agreed to pay for the 45th floor of the Cheung Kong Center in August last year, in deal which set a price record for a full floor lease when Hong Kong’s office was pushing new price levels each month.
Market analysts in Hong Kong indicate that Kai Tak’s deal is in the upper reaches of current pricing.
Rents for leases of full, mid-zone floors in the Cheung Kong Center currently average HK$177 per square foot, according to Denis Ma, head of research for Hong Kong at JLL. Kai Tak’s new lease gives it around three-quarters of a floor in a building where typical floorplates measure around 20,000 square feet, and the 58th floor space puts the firm near the top of the 63-storey building.
Kai Tak currently occupies a unit on a lower floor of the Cheung Kong Center, and will be roughly tripling its current footprint when it moves into the new office.
No Trend Yet
While the new lease offers the mainland firm the convenience of moving to a new set of elevators instead of finding a new office across town, the deal does appear to be countering a current slowdown in Hong Kong’s world-leading office market.
Rental growth in Hong Kong’s grade A office market slowed to just 0.3 percent month on month in January, according to a report published in mid-February by JLL. By the end of January, vacancy rates in Central had crept upwards to 2.3 percent from 1.8 percent at the end of December according to the brokerage’s figures ,as companies increasingly look for more cost-effective opportunities in other districts.
JLL’s Ma referred to this most recent lease as a more of an anomaly than a trend at the moment, with demand for trophy spaces slackening in the most recent period.
Research published last month by Knight Frank predicted that office rents in Central may slide by as much as seven percent during 2019, with the agency estimating that average rates for space in the district at HK$163.7 per square foot per month at the end of November.
The demand from mainland corporates for showy offices in Hong Kong took a very public turn in mid-2018 when financially troubled HNA Group surrendered an 88,000 square foot space in Hongkong Land’s Exchange Square which it had never moved into. The collapse of that HK$12 million per month deal included the blue-chip developer suing HNA for HK$8.3 million in unpaid fees related to the unconsummated relationship.