The latest financial results released by blue chip developer Swire Properties highlight a growing trend in Hong Kong’s office market, as large occupiers flee the punishing prices of the city’s traditional business hubs in favour of lower rents at high-spec buildings in emerging commercial areas.
Rents on new leases signed at Swire’s Pacific Place complex in Admiralty district, close to Hong Kong’s traditional urban core, fell 11 percent in the six months to June compared with the preceding six months, according to an operating statement issued Tuesday by the real estate division of the centuries-old trading group.
Meanwhile, rents were up 2 percent at Swire’s Taikoo Place in the Quarry Bay area of eastern Hong Kong Island, and rose by as much as 10 percent at the company’s high-end One Island East and One Taikoo Place within the complex.
Rental rates during the period at Pacific Place ranged from HK$90 ($11.58 now) per square foot to as much as HK$120, while Taikoo Place offered a relative bargain with rents from the mid 40s to the low 70s.
The figures capture a theme that property consultancy JLL dubs a “flight to quality” — but which could just as fairly be called a flight to value — as relocation activity heats up in the longtime financial capital.
Swiss Bank Anchors New Project
The second quarter of 2021 saw a watershed of sorts with the announcement that Julius Baer, based at One International Finance Centre in Central, would move into Swire’s under-construction Two Taikoo Place, where the Swiss bank has leased four floors of office space spanning 90,000 square feet (8,361 square metres). Property services firm Colliers described the shift as the biggest “decentralisation deal” in more than two years in the city.
Keith Hemshall, executive director and head of office services for Hong Kong at rival Cushman & Wakefield, said Julius Baer’s decision reinforced the existing trend of legal and finance firms upgrading from dated buildings in Central to brand-new, top-class developments with larger and more efficient floorplates at highly competitive rates.
“Whilst the location of Quarry Bay is undoubtedly less convenient, the financial savings allow for some companies to retain a meeting/touchdown presence in Central,” Hemshall told Mingtiandi.
Other large leasing deals in the first half of the year included insurance firm FWD’s take-up of 163,280 square feet of space (HK$48 per square foot) at Taikoo Place’s Devon House and duty-free retailer DFS’s rental of 55,000 square feet at One Taikoo Place.
Cushman & Wakefield sees firms taking advantage of significantly softer rents during the current downturn to restructure leases or upgrade and even expand as economies look to open up across the region with the gradual containment of the COVID-19 pandemic.
Second CBD Shines
Even farther afield, upstart Kowloon East — a historically industrial area undergoing commercial redevelopment — continues to attract buzzworthy tenants as an alternative to the central business district.
C&W’s Hemshall gave the example of Farfetch, the British-Portuguese online fashion retailer, which accounted for one of the largest deals in recent weeks with its relocation from an industrial building in Wong Chuk Hang to a 35,750 square foot office space at PAG’s International Trade Tower in the Kwun Tong area.
The luxury e-commerce site’s shift to the Kowloon East building was revealed after Canadian financial services company Manulife drew attention for leasing 145,000 square feet at the ITT in May. The new space is Manulife’s fourth Grade A office location in Kowloon East, making the firm one of the largest employers in the area.
Kowloon East’s rising profile is best represented by The Quayside, a joint venture development by Link REIT and Nan Fung Group consisting of two connected office buildings in Kwun Tong.
US financial services giant JP Morgan now occupies nine floors in one of the towers, and flexible office provider IWG in February took over 50,000 square feet of space at The Quayside once occupied by rival WeWork.
In July, digital publisher New Media Group and grocer Sainsbury’s became the latest to call The Quayside home, leasing 36,341 and 19,271 square feet respectively, according to Knight Frank’s monthly office report.
“Decentralised areas such as Quarry Bay, North Point and Kowloon East continue to be the popular areas for office tenants targeting to save costs,” said Martin Wong, director and head of research and consultancy for Greater China at Knight Frank.