Office rents have been falling in Hong Kong’s Central and the rationalisation of the world’s most expensive business location may have just brought a finance multinational back to one of the district’s trophy towers.
S&P Global moved into a two-floor space in Three Exchange Square at the beginning of this month, according to a statement today by Hongkong Land, which owns the building near the Star Ferry piers.
The lease brings the credit rating and financial information provider back to the three-building complex, which also houses the stock exchange in Central, after it left the district in 2012 for offices across the harbour in Sun Hung Kai’s International Commerce Centre (ICC).
“We are delighted to welcome S&P Global back to Central,” said Raymond Chow, executive director of Hongkong Land. “This is a further testament to the resilient quality and value of Central Hong Kong as both a global financial hub and nexus of the business elite.”
Agents Flogs Former Home
The lease, which was brokered by CBRE, puts the NYSE-listed financial information firm into 22,000 square feet (2,043 square metres) of space on the third and fourth floors of the thirty-three storey tower which is home to some of the world’s largest money managers.
“New office leases of more than 10,000 square feet have been a rarity in Hong Kong over the past 12 months,” said Ryan Jones of CBRE’s office services team in Hong Kong. “This transaction, as well as the strong pipeline of leasing activities we expect for this year, reaffirms the improving business environment in various key sub-markets in Hong Kong.”
Jones and his workmates are well familiar with this particular set of floors in Exchange Square, as they had served as CBRE’s headquarters in the city until the property agency moved to Swire Properties’ One Pacific Place in Admiralty district until May of last year. That move put CBRE just one MTR stop away from Exchange Square, but was estimated at the time to be saving the firm around 37 percent on its monthly rental bill.
Before moving to the ICC in Kowloon in 2012, S&P from 1986 had been a tenant in Hongkong Land’s Edinburgh Tower, a mixed-use complex on Queen’s Road in Central which is also home to the Landmark Mandarin Oriental Hotel.
Good News in Central
S&P’s relocation to Exchange Square was the second major leasing transaction announced this month after more than two years of declines in Hong Kong’s office market, and brought a rare bit of good news regarding Central, which has seen major institutions rethink their commitments to the traditional business hub.
Although Hongkong Land reported that average office rents in its Central office portfolio climbed from HK$118 ($15.18) per square foot per month in 2019 to HK$120 per square foot last year, the blue-chip developer also saw vacancy rise in those prized addresses.
At the end of 2019 the property division of Jardines Group reported just 2.9 percent vacancy on both a physical and committed basis in its Central office properties, with that number jumping to 6.3 percent on a physical basis and 5.9 percent on commitments by the end of last year.
While Hongkong Land saw its vacancy in Central double over a one year period, the firm’s properties continue to outperform the market, with the percentage of empty space in the Greater Central area standing at 12 percent in the first quarter of this year, according to a report released this week by Cushman & Wakefield.
That vacancy rate was a result of office tenants holding leases for around 200,000 fewer square feet of office space during the first three months of this year than in the previous quarter, according to C&W’s figures. Central led a trend of negative net absorption of office space across Hong Kong’s primary office markets during the period from January through March, with tenants leasing a total of 899,600 square feet less in the first quarter than at the end of last year.
“Although we see positive sentiment in Hong Kong building up gradually with vaccination in place, occupiers remained cautious and are still in the process of shopping for more cost-effective office options with favourable lease terms,” said Keith Hemshall, head of office services for Hong Kong at Cushman & Wakefield.
Prime Central rents have now fallen by more than 30 percent from their peak in the first quarter of 2019, the brokerage said, with the district averaging HK$115.3 per square foot last quarter. That figure was down 3.4 percent from the previous three months and 21 percent from the same period a year earlier.
Hong Kong’s top office markets have now seen rents fall by an average of 24.4 percent from their top levels two years ago to stand at HK$57.4 last quarter per Cushman’s report.
Beyond S&P’s shift back to Central, that drop in rents citywide may be sparking some big deals in other districts as well. Canadian insurer Manulife last week announced that it had agreed to lease four floors in PAG’s International Trade Tower in Kowloon East.
That 145,000 square foot agreement marked the city’s biggest office leasing deal in terms of floor area since July 2019.