Rents at Hong Kong’s 2 IFC are now well past their peak (Source: Getty Images)
Japan’s Nomura Securities is surrendering an entire floor in Hong Kong’s second-tallest office tower, having terminated its lease for the 26th floor at Two International Finance Centre last month, according to local media accounts.
After handing back the 23,076 square foot (2,143 square metre) floor, Nomura is retaining about half the space it had initially taken up when it leased close to six floors in the tower three years ago, said Alex Leung, senior director at CHFT Advisory and Appraisal.
The securities brokerage firm is scaling down its Hong Kong office space amid the city’s economic slowdown, with the stock exchange having helped just 17 companies raise a combined HK$14.9 billion ($1.8 billion) in IPO proceeds over the first quarter – about 89 percent less than during the same period last year, according to a reporting by S&P Global citing stock exchange data.
As Nomura shrinks its footprint, financial services firm Jefferies Hong Kong is said to be taking over the 26th floor of Two IFC, as it shifts from its long-time home just over a kilometre (0.62 miles) away on the 22nd floor of CK Asset’s Cheung Kong Centre in Central. In April, Jefferies had also agreed to lease units 10 to 12 on the building’s 27th floor – which Nomura had given up in 2020, according to local media reports.
Exits and Upgrades
With Nomura’s latest hand-back taking place about two years after it surrendered 56,000 square feet (5,202 square metres) of space at Two IFC, the firm’s downsizing this year means that since 2019 the firm has given up about 56 percent of what had once been a 140,000 square foot presence in Two IFC.
Patrick Kwan, co-head of investment banking for Asia ex-Japan at Nomura
Before giving up the 26th floor, the Japanese brokerage firm was paying a monthly rent of about HK$3 million for the space, or around HK$130 per square foot per month, local media reported.
Current rents at Two International Finance Centre, which was jointly developed by Hong Kong’s Sun Hung Kai Properties, Henderson Land and utility provider Towngas, average around HK$120 to HK$130 per square foot per month, according to market sources.
Although these rental rates represent the highest in Central, the cost to occupy space in the 88-storey tower has fallen by 25 percent since the first quarter of 2019, Leung said, with average rents in Greater Central in the first quarter of this year down about 30 percent from the same period in 2019 to an average of HK$97.80 per square foot per month.
Rents at Cheung Kong Centre, which average HK$110 per square foot per month, are only slightly lower than Two IFC, said analysts who spoke with Mingtiandi. However, the tower’s waterfront location, access to the city’s Central and Hong Kong MTR stations, and its connection to the IFC mall – which is part of the same commercial complex – could be reason enough for companies like Jefferies to shift to the iconic complex, said CHFT’s Leung.
Last month, Central district’s biggest landlord Hongkong Land welcomed a former tenant back to its office portfolio after 15 years, announcing that global law firm White & Case had taken up three floors at York House, the developer’s Grade A office tower at 15 Queen’s Road. The move followed a 2.5 percent year-on-year decline in average rents at the developer’s Hong Kong office portfolio to HK$117 per square foot per month in 2021, according to Hongkong Land’s latest annual report.
High Vacancy
Nomura’s remaining tenancy in the 2 IFC, which is currently 97.5 percent occupied, spans floors 30 to 32, and will expire in December of 2023.
Its lease surrender at Two IFC last month paralleled a slight increase in Central district’s vacancy rate, which in April edged up 0.1 percentage points from the preceding month to 7.4 percent, according to JLL’s latest property market monitor.
News of Nomura’s downsizing comes as firms continue to scale back their footprints in the city. Since the second half of 2020, multinational banks in Hong Kong have downsized their offices by at least 312,000 square feet, including Deutsche Bank giving back 104,000 square foot at SHKP’s ICC in West Kowloon, according to an office leasing report published by Savills in April.
“Many financial services firms are adopting flexible working practices as a more permanent way of working and are typically downsizing on lease expiry,” said Savills.
About 11 million square feet of new Grade A office supply is scheduled to be added to the Hong Kong market between 2022 and 2025 with minimal pre-commitments from occupiers, according to the property consultancy. This surge of new space could result in 17.2 million square feet of office supply over the next four years, with the agency predicting that vacancy could rise as high as 17.7 percent.
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