Firms to Shift
One International Finance Centre, center right, and Two International Finance Centre, center, are illuminated on the skyline in Hong Kong on Dec. 13, 2010. Photographer: Dale de la Rey/Bloomberg
Surging office rents in Hong Kong are prompting firms including Allianz Global Investors to shift out of the city’s most expensive towers as competition for prime space heats up along with the region’s growth.
Prime office rents in the Central business district soared 34 percent in the six months ended September from a year earlier, the biggest gain worldwide, according to property broker CB Richard Ellis Group Inc. Office rents in the area may climb as much as 30 percent next year, said Gavin Morgan, head of markets at Jones Lang LaSalle Inc.
Top-tier buildings such as Cheung Kong Center andInternational Finance Centre have raised rents as banks including HSBC Holdings Plc and Barclays Plc expand after the financial crisis. The city now has the world’s most expensive occupancy costs after London’s West End.
Tenants in Central “are reassessing whether it’s still within their budget to stay in the district,” said Simon Lo, Hong Kong-based director of research and advisory at Colliers International. Some tenants such as professional services or consulting firms “have a much lower threshold for rents,” he said.
Cheung Kong Center, the 12-year-old office building owned by Li Ka-shing, Hong Kong’s richest man, may see as many as five tenants move out by the end of 2011, according to people with knowledge of the matter.
The IFC towers I and II, both owned by Sun Hung Kai Properties Ltd. and Henderson Land Development Co., are seeing at least three tenants depart this year and next.
Hongkong Land Holdings Ltd.’s Exchange Square complex will lose another tenant to Sun Hung Kai’s International Commerce Centre in West Kowloon, across Victoria Harbour, following moves by Morgan Stanley and Credit Suisse Group AG.
Allianz, McKinsey
Allianz Global, the investment unit of Allianz SE, Europe’s largest insurer, which occupies about 20,500 square feet in Cheung Kong Center, will shift to nearby Citibank Plaza, according to three people with knowledge of the matter. McKinsey & Co. is also looking at moving, according to two people.
Patience Chan, a spokeswoman for Allianz in Hong Kong, declined to comment, as did Glenn Leibowitz, a Shanghai-based McKinsey spokesman. Laura Cheung, a spokeswoman forHutchison Whampoa Ltd., which owns and operates Cheung Kong Center, declined to comment on its tenants. Hutchison is 49.9 percent- owned by Li’s developer Cheung Kong (Holdings) Ltd.
PricewaterhouseCoopers LLP, whose current lease for its 85,000 square feet of space expires in November 2011, is in discussion with Cheung Kong Center’s building management about a possible renewal, Joanne Oswin, a Hong Kong-based operation partner at the accounting firm, said in an interview.
Cheung Kong Center
Even with such departures, Cheung Kong Center won’t have problems attracting new tenants, said John Siu, general manager for southern China at real estate services firm Cushman & Wakefield Ltd. in Hong Kong. Barclays, the U.K.’s third-largest bank, moved into the building earlier this year.
“It is one of the few top-tier office buildings in Hong Kong and many companies believe that being there gives you a sense of prestige and market influence,” said Siu.
Cheung Kong Center, built on the site of the former Hilton hotel, charges its new tenants between HK$140 ($18) and HK$150 a square foot per month on average, according to Seattle-based Colliers and Cushman & Wakefield of New York. The average rent in Citibank Plaza, owned by Champion REIT, is HK$110 per square foot and in Swire Pacific Ltd.’s Pacific Place in Admiralty district from HK$95 to HK$100, according to Colliers.
“We’re seeing a change in the profile of tenants in Central’s top office buildings,” said Jones Lang LaSalle’s Morgan, who is based in Hong Kong. “Many of the support departments in the big banks or professional firms providing these services to them are moving their operations away to non- core districts.”
Citic Tower
Accounting firm Ernst & Young LLP is moving its entire local operation, now in IFC II and Li’s Hutchison House, to Citic Tower in Admiralty, adjacent to Central, next year, according to spokeswoman Queenie Yuen. The firm has agreed to take up nine floors at the tower, owned and run by Citic Pacific Ltd., an arm of China’s biggest state-owned investment company.
ING Groep NV, the biggest Dutch financial-services company, in October moved its investment management and insurance units to the ICC from IFC I, said spokeswoman Jessie Hsieh. London Stock Exchange Group Plc in July moved its Hong Kong office from IFC II to ICC.
Rents in IFC II, Hong Kong’s second-tallest skyscraper after the ICC, and IFC I, are about HK$140 per square foot, according to Chicago-based Jones Lang LaSalle, the second- largest publicly traded commercial property broker. Rents at ICC are about HK$55 and may rise as much as 30 percent over the next two years, according to property consultant Knight Frank LLP.
Moving Out
Simmons & Simmons, a London-based law firm, will move out of its 21,000 square-foot space on the 35th floor of Cheung Kong Center in May for Pacific Place, Paul Li, Simmons & Simmons’s China head, said in a phone interview.
Deutsche Bank AG will complete its relocation to the ICC from Cheung Kong Center this year, said Singapore-based spokesman Mark Bennewith. Bloomberg LP, the parent company of Bloomberg News, is a tenant in Cheung Kong Center.
“The reason why we haven’t heard new tenants moving in yet is because some of the ones that are moving out still have a few months to a year in their contract and landlords won’t normally need to rush to sign up new tenants,” said Cushman & Wakefield’s Siu.
That space will probably be filled by separate small offices of hedge funds or investment banks, he said.
Gateway to China
Occupancy costs, which include rent, taxes and service fees, were $184.21 a square foot a year in Central, compared with $193.69 in London’s West End, according to a report from Los Angeles-based CB Richard Ellis, the world’s largest commercial property broker.
Hong Kong’s government raised this year’s growth forecast to 6.5 percent as the city, a gateway to China, benefits from growth on the mainland.
The jobless rate fell to 4.2 percent for the three months ended Oct. 31, the lowest level in 20 months. The city’s number of financial professionals rose to a record 37,694 by July, eclipsing the previous high reached in November 2008, the Securities and Futures Commission said in August.
PwC, which also has offices at the Edinburgh Tower and Prince’s Building in Central, leased about 100,000 square feet of office space in 2008 at the Manulife Financial Centre in the Kowloon East district. Rents in that district, a 30-minute subway ride from Central, are currently between HK$20 and HK$30 a square foot, said Colliers’ Lo.
Professional services’ firms “are going to be reviewing their cost base as a result of rising rents in Central,” said Rhodri James, Hong Kong-based executive director of office services at CB Richard Ellis. “Some of them will be moving all or part of their operations to more cost-efficient buildings outside the area.”
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