Hong Kong Faces Serious Shortage in Grade A Office Buildings

A new survey reflects a serious shortage in Grade A office buildings in Hong Kong which is detrimental to the region's competitiveness.


The report, conducted by CB Richard Ellis (CBRE) and commissioned by The Royal Institution of Chartered Surveyor,  also shows that the finance and insurance, real estate and business services (FIRE) industries actively opt to remain in areas which attract the highest rent, despite being able to attract rental discounts of between 55 - 79% outside of the CBD.


The reason for this can be attributed to multiple factors: corporate image, transportation network and proximity to clients, and the fact that office buildings in CBD could provide larger space, especially Grade A buildings.


The study points out that between the period of 1995 and 2011 Q2, the supply of Grade A office buildings in Hong Kong was affected by 3 major crises. Level of vacant Grade A office buildings rose high due to the hit of the financial crisis in 1997, followed by the burst of technology websites bubbles and then the outbreak of SARS. Later, the vacancy dropped from the reviving economy. Figures show that the vacancy in Grade A office buildings are declining in each wave of rebound.


According to the study, supply for office space is forecasted at about 5.25 million from 2011 to 2014 square feet, which is about 1.3 million square feet per year, representing substantial decline in supply when compared to the annual 1.9 million square feet between 1995 and 2011.


The study reveals that even in the worst case scenario, where annual GDP growth falls by 5%, demand for office space is still equal to forecast pipeline supply through to the end of 2014.


The underlying strength of the Hong Kong economy, however, suggests that there will be a further fall in vacancy rates in the very near term. Respondents believed multinationals will be deterred from entering or expanding in Hong Kong because of the shortage in office space.


Despite evidence that suggests green buildings have the ability to attract higher rent, sustainability is currently not a key consideration for landlords and tenants in Hong Kong.


RICS thinks that sustainable buildings are not any more expensive to build from the outset than conventional ones, but their ownership can result in clear benefits for investors, ranging from drastically lower operating costs, significantly increased occupant productivity and more stable cash-flows.




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