Far from Central
Hong Kong's office shortage is a challenge but it's also reshaping the existing office landscape for the better.本港寫字樓供應不足，促使商廈市場重塑面貌。
Decentralisation continues. With office space in Central maintaining an upward price trajectory, rental rates spiking, vacancy at a 20-year low (according to JLL) and no significant supply on the horizon, the office market finds itself as stressed as the residential sector. In 1999, vacancy in Grade A offices stood at 11.9%. At the end of August 2018 it was at 4.2% overall but just 1.5% in Central, 1.6% in Wan Chai, Causeway Bay and Island East, and 1.4% in Tsim Sha Tsui. The result, of course, is a 6.5% spike in rental rates on average over the past three years, and Hong Kong becoming the most expensive office market in Asia Pacific: 21% more expensive than Tokyo and 54% more than Singapore. “Hong Kong will lose its competitive edge as the barrier to entry for companies looking to enter or grow specific parts of their business,” warns Alex Barnes, head of markets at JLL.
JLL'S head of research, Denis Ma, pointed to the government reliance on land sales over private redevelopments for office supply as one of the problems, so in that light the HK$25 billion purchase of the Murray Road carpark (for redevelopment) and the Mandarin Oriental's announcement that the Excelsior Hotel would become offices (in six years) was welcome news, but also highlights “the important role that the government has in ensuring that appropriate business accommodation is delivered to the market,” said Ma.
It was just about three years ago that the wider move to decentralisation began, with MNCS and Hong Kong firms opting to forego prestige addresses in The Landmark and IFC for alternatives in Wong Chuk Hang and Kowloon East with higher vacancies and lower rents. Add to that list San Po Kong and an unlikely candidate in Island East.
West of the East
Bordering the more high-profile Kai Tak, Kowloon City and Kowloon Bay, San Po Kong is a modest district dotted with old industrial buildings and a couple of parks. When Hanison Construction splashed out HK$850 million for the Mee Wah Factory Building in the heart of the district, intending to convert it into offices, it signalled what may be the beginning of the San Po Kong renaissance. According to Colliers International at least nine sites have regeneration potential in the area— for a total of 2.25 million precious square feet—and over half of the older industrial buildings in the area are already converting to commercial use. In addition, the 2017 Policy Address lumped San Po Kong into the emerging CBD2 at Kowloon East.
“With the relaunch of the industrial revitalisation scheme, ageing industrial buildings and the upcoming infrastructure, the transformation of San Po Kong is likely to accelerate,” theorises Zac Tang, assistant manager for research at Colliers Hong Kong. “Given the proximity to the Kai Tak area, San Po Kong is likely to benefit from the Sha Tin to Central Link more than other Kowloon East areas.” While that's all fine, Kowloon East is still flirting with above average vacancy rates, and as an industrial hub, there is not much in the way of residential property in the area. CBDS rarely thrive without area residents. Under normal circumstances that may be the case, but the tightening office supply is going to mean more commuting for Hongkongers, which will be easier with the Sha Tin Link: San Po Kong is closer to Central than Kwun Tong or Kowloon Bay, and the MTR puts Sha Tin in striking distance. The transformation of San Po Kong into a commercial hub is, as Tang says, just a matter of time.
The accessibility, public realm improvements and forthcoming promenade signal an attention to worker wellbeing that is gaining traction globally.
Eastern Blocks
San Po Kong's renaissance is intrinsically linked to Hong Kong's dwindling office supply, but Island East is far from a so-called emerging district. Quarry Bay has been a viable alternative to Central and Causeway Bay for years. But as Tang explains, it's been an option for local enterprises. “To be precise, Island East [has been] emerging as an office market for headquarters of multinational companies in recent years. The relocation, or decentralisation, is due to high rents and low vacancies in Central, as well as the upcoming completion of the Centralwan Chai Bypass and One and Two Taikoo Place, making Island East more attractive to MNCS, law firms and large banks.”
Part of that appeal has to do with Island East's international, urban vision that dovetails with trends emerging in London, New York, Amsterdam, Toronto, Melbourne and other cities turning their focus to walkable spaces, public realm and connectivity. The accessibility, public realm improvements and forthcoming promenade, largely spearheaded by Swire Properties, signal an attention to worker wellbeing that is gaining traction globally. Swire's HK$15 billion redevelopment of One Taikoo Place is anchored by its 70,000-square-foot public Taikoo Garden. “With the redevelopment of Taikoo Place, we intend to redefine Hong Kong's office landscape, not only by creating exceptional office space to suit the modern worker, but also by looking beyond bricks and mortar and creating vibrant places where our expanding business community can thrive,” said Swire chief executive Guy Bradley in a statement. The Island East renaissance has already attracted tenants such as Facebook, global law firm Baker Mckenzie (moving from Central) and insurance giant Metlife Asia.
Swire is getting help from developer Pacific Concord, which applied to the Lands Department to swap out industrial sites in Quarry Bay for a larger plot for a combination low-rise leisure and office project on the waterfront while maintaining a 10-metrewide promenade that could potentially stretch two kilometres. This engaged, amenity-heavy planning is being mirrored in office districts in Kwun Tong, TST and West Kowloon.