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News Release


Expansion of financial services will require an extra 5 million sq ft of office space over the next 10 years

Western investment banks to reduce their footprints in Central. 

HONG KONG, 31 October 2016 – Even as larger Western banks trim operations here in Hong Kong, the impact on office market has been largely offset by the growth of mainland financial institutions. Amid the current challenging business environment, the financial services sector is expected to grow and need an additional 5 million sq ft of office floor space over the next ten years, according to JLL's latest research report, New Financial Sector Dynamics Re-Shape Hong Kong's Office Market, released today.

The financial services sector is the second largest contributor to Hong Kong's GDP. But in recent years, revenue at the world's largest banks has been affected by stagnant economic growth and ultra-low interest rates. For traditional Western bulge bracket investment banks here in Hong Kong, the slowdown in global banking has been compounded by increasing competition from mainland Chinese financial institutions seeking to grow market share. In the IPO market, for example, the involvement of mainland banks in new listings has increased from 36% in 2006 to 57% in 2015.

JLL believes the main drivers of office demand will come from:

1. Growth of mainland financial institutions: Mainland financial institutions continue to expand in Hong Kong. With the steady growth of mainland institutions, we believe that the industry could potentially add a further 55,000 headcount over the next 10 years, which could translate into as much as 5 million sq ft of office floor space demand.

2. Funds Management: Banks offering funds management related services including Asset Management, Private Banking and Funds Advisory businesses, will continue to benefit from the growth of Hong Kong's MPF schemes, HKMA's commitment to developing the local funds management industry, increasing cross-border capital flows from mainland China, as well as growing wealth in the region.

3. FinTech: Though still relatively small compared with other cities around the world, Hong Kong's FinTech industry has tremendous potential for growth. Hong Kong has some of the highest innovation adoption rates in the world and its close proximity to China means that it is next door to the world's largest e-commerce market and the world's largest P2P lending market.

4. Insurance industry: In recent years, an increasing number of mainland visitors have travelled to Hong Kong to purchase insurance policies. In 2015, they spent USD 4.1 billion (HKD 31.6 billon) on insurance policies, 30% higher than the previous year and almost 400% more than 2011 levels. To meet the surge in demand, insurers have added an extra 20,600 people to their headcounts over the past five years (2011-2015), with 12,500 people being added in the last two years alone. Although the mainland government has tightened restrictions on the use of third-party payment providers to buy insurance products in the city, the underlying factors driving growth in this industry remain unchanged.   

Denis Ma, Head of Research at JLL, said: "Even as larger Western banks trim their operations in Hong Kong, the overall impact on the market will be dampened by the growth of mainland financial firms in the city. We believe that mainland financial institutions will continue be a key driver of growth. The city's funds management business is likely to be another key catalyst behind the growth of the sector moving forward and will be among those who will be in the strongest position to maintain offices in Central. The dark horse is of course, FinTech, which has potential to create new markets and introduce new players into the industry," 

How will those changes affect the city's office market?

Financial services have historically concentrated their offices in Central. In 2015, the sector accounted for about a half of the Grade A office occupier market within the district, including Sheung Wan and Admiralty. However, a volatile rental market and consistently tight vacancy rates has prompted a number of banks to relocate or increase their office footprint outside of Central. In 2015, about 41% of all persons employed in the industry worked in Central, compared to 48% recorded in 2006. As of the end of 2015, nine of the city's 10 largest banks (by floor area) already had more than 50% of their (Grade A) offices located outside of Central.

As Grade A office rents in Central have rebounded in recent years, the economics behind staying in Central have become increasingly untenable for larger occupiers, especially with the rental gap between the most expensive and most affordable Grade A office buildings in the city now as wide as HKD 145 per sq ft per month. As a result, a number of banks have recently committed to relocating their offices outside of Central; a trend that we expect will only gather traction in the future.  

Alex Barnes, Head of Hong Kong Markets at JLL, expects the growing footprint of mainland Chinese financial institutions in Central will trigger another round of decentralisation among larger US and European banks.

The decision among large financial institutions seeking to relocate or grow their office footprints outside of Central is being driven by three key factors: 1) cost, 2) building quality and 3) accessibility.

"Over the near term, the office market that is likely to benefit most from the decentralisation of financial institutions will be Hong Kong East. With a number of landmark office buildings coming online over the next five years and the completion of the Central-Wanchai Bypass, the appeal of Hong Kong East as a front-office location for the financial services sector will only grow," Barnes said.

"As larger Western financial institutions move out or reduce their footprints in Central, much of the vacated space will likely be backfilled by mainland Chinese corporates. What we're also likely to see is a future Central office market that is dominated by a greater number of smaller occupiers. Those that do have sizeable footprints will likely be owner-occupiers."

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For more details, please click here​ to download the report.