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Central: Gateway to Hong Kong

District offers entry point for mainland Chinese firms

​​​​​AP-HK-HKM-Central-Offices-banner.jpg Driven by demand from m ainland China, the office leasing sector in Hong Kong is the most expensive in the world, according to JLL’s Global Premium Office Tracker. Nonetheless, corporates from north of the border are eager not only to rent office locations in Central, but are also eyeing up opportunities to buy the most prestigious sites.

“It is difficult to find quality offices in premier locations for sale, so companies are forced to continue renting office space,” reveals Kenny Yu, Local Director, Hong Kong Markets at JLL Hong Kong.

In 2015, mainland corporates accounted for one fifth of the floor space leased in Central’s Grade A office market – more than 5 million square feet. Chinese companies entering the Hong Kong office market, however, start out small, leasing only 5,000 to 10,000 square feet – less than a whole floor – and will shoulder high rents to make a great first impression in Hong Kong and overseas, in order to stand out among their competitors. The lure and convenience of Central as Hong Kong’s financial district greatly appeals to mainland Chinese firms, keen to use the HKSAR as a stepping stone to expand into key global markets.

These companies’ priority is to find out where Hong Kong’s first tier buildings are located, as well as where their competitors are based. This is appealing as a comfortable starting point when choosing where to lease their first office in the city.

Newcomers from mainland China often feel that relocating to Kowloon or the New Territories puts them at risk of being overlooked by potential clients. More established banks or multinational corporations (MNC), however, can afford to move out of trophy buildings such as International Finance Centre (IFC) to lease an office at a less expensive address.

“Most mainland commercial investment banks and fund managers choose first tier Grade A offices, while companies not engaged in the financial sector, including mainland Chinese legal and IPO-listed companies, prefer to lease slightly cheaper, but equally well located buildings,” explains Yu.

The majority of firms opening branch offices in Hong Kong are based in China’s first tier cities: Beijing, Shanghai, Guangzhou and Shenzhen. However, over the past two years, JLL has observed that leading mainland companies headquartered in China’s non-first tier cities, such as regional banks and securities firms, have also started to look to Hong Kong – to expand their investment range on behalf of their clients. Mainland Chinese companies have also become increasingly savvy about leasing office space in Hong Kong.

“They don’t just choose the best building in the city, they choose the one that suits their needs the most,” says Yu.

In Central, JLL forecasts that rents will continue to rise, but Yu suggests there are still plenty of options for companies looking for a quarter or half a building’s floor space in the short-term. Looking further ahead, there may be some price adjustment in the Central office leasing sector next year owing to large-scale new developments in Quarry Bay, Causeway Bay and  Tsim Sha Tsui, Kowloon.

“It’s not just the overseas banks who are considering where they want to be based long-term and moving out of Central, but some PRC companies too.” says Yu.

“From next year, we expect to see some pressure on Central rents because of the growing supply outside of Central and willingness of traditional Central occupiers, both MNCs and mainland Chinese firms, to consider relocating part or all of their operations to lower cost areas,” he concludes.

For more information, please download our white paper – Past, Present, Future: China's role in in driving the growth of Hong Kong's property market – or contact Kenny Yu

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