Office rentals surge in HK as demand set to grow

Fireworks explode over Victoria Harbor to celebrate the Chinese Lunar New Year in Hong Kong, Feb 1, 2014. [Photo/Agencies]

The expansion in Hong Kong by regional banks and other professional services firms from the mainland is pushing up office rentals in the center of the city.

The latest snapshot of the market from JLL, the international real estate advisory firm, shows Hong Kong's office-leasing market remains strong, despite the recent stock market rout.

Bank of Shanghai took an entire floor of the city's Citibank Plaza, said property services firm CBRE Hong Kong, while Paul Louie, a Barclays property analyst, reported Xiamen International Bank had expanded its offices in Two Exchange Square, as had China Bohai Bank and Bank of Dongguan in smaller office blocks nearby.

The latest JLL data also shows, however, that during September monthly office rentals in Hong Kong's Central district had returned to the HK$100 ($12.9) per square feet level for the first time since the European sovereign debt crises at the end of 2011.

The overall Grade-A office vacancy rate remained steady at 3 percent.

"The closer integration of the Chinese mainland and Hong Kong, coupled with the expectation that more cross-border investment channels will be available in future, continue to underpin the confidence of mainland companies in establishing or expanding a presences in Hong Kong," said Paul Yien, JLL's regional director of Hong Kong markets.

"The city remains a strategic stepping stone for their international expansion."

According to a property report jointly published by CBRE and Daiwa Capital Markets in May, mainland finance companies particularly are becoming increasingly active in taking up Hong Kong office space, as they seek to take advantage of the city's high market transparency and well-recognized international legal system.

Marcos Chan Kam-ping, CBRE's head of research for Hong Kong, Macao and Taiwan, said the lack of restrictions on foreign investors entering the city's office leasing and investment markets was luring outsiders.

"Hong Kong's strategic location coupled with its unique role in bridging the mainland and international financial markets has also prompted multinational companies, international property funds and mainland corporations to establish presence and expand their footprint," Chan said.

JLL predicts prime-office rentals in Hong Kong will increase another 10-20 percent this year, compared to last year's 3 percent.