Weak demand, high vacancy rates and falling rentals show move to stability
Hong Kong gets a bad wrap as one of the world's most expensive places to do business, undoubtedly because of supposed sky-high office rents. This is an erroneous assumption as Hong Kong is now competitively priced and one of the least expensive major cities to set up office.
Office space is not expensive because tenants on average allot less space per head than in other major cities in terms of total business cost per employee. In other words, if you have 1,000 square feet of space in Hong Kong you might allocate that for 100 employees, whereas elsewhere it might be for only 80 staff members. Property consultants Knight Frank say Hong Kong once ranked in the world's top three, along with London and Tokyo, but it has fallen and by the end of the year won't even rank in the top 20. In the Asia-Pacific region, Tokyo is the most expensive.
Industry professionals say expenses should be based on the cost of occupying the building which includes statutory outgoings such as rates and operational outlays for air conditioning, management services and electricity.
Weak demand, high vacancy rates and falling rents have characterised Hong Kong's office market. Yet these symptoms, say industry veterans, are a sign of the city's evolution to a more mature property market.
A more mature market also implies reduced rental volatility resulting from longer-term leases. In Hong Kong such contracts are usually for a three-year term, while in other cities such as London they can be for 15 to 20 years.
