High-end office assets in Hong Kong鈥檚 Causeway Bay neighbourhood are expected to draw greater interest from large multinational companies that are seeking to expand in the city, in a boost to the sluggish property market.
Following Jane Street Asia鈥檚 record-setting HK$30.6 million (US$3.9 million) a month lease for a 223,437 square foot space in Henderson Land鈥檚 New Central Harbourfront project in Central, one veteran deal-maker said Causeway Bay was expected to see Hong Kong鈥檚 next major office leasing deal.
鈥淭rophy buildings with large floor plates in Causeway Bay will be the new focus of the market and will draw more tenants,鈥 said Paul Yien, the executive director for office leasing advisory at JLL, who has been an agent for 25 years.
The area is more well-known for shopping and dining than it is for office space. But Lee Garden Eight, a joint venture between Hysan Development 鈥 Causeway Bay鈥檚 largest commercial landlord 鈥 and Chinachem Group was expected to be finished next year. It will feature more than 1 million sq ft of office space and a floor plate that could be as large as 38,000 sq ft, the largest on Hong Kong Island.
Yien said he was confident in Causeway Bay because it is vibrant and bustling even on weekends and has a broader mix of tenants. JLL is the main agent for Lee Garden Eight.
鈥淐auseway Bay is much more diverse in terms of tenants,鈥 Yien said. 鈥淚n Central it鈥檚 mostly banking and finance tenants, the hedge funds and private equity firms. In Causeway Bay, there are all sorts of different business sectors: security firms, accountants, lawyers, technology [companies], so we see them clustering there.鈥
In addition, the neighbourhood鈥檚 retail and dining options run the gamut from affordable to high-end, he said.
Around 80 per cent of leasing tenants in Central were in the banking and finance industry as of June, while about 1 per cent were in the insurance sector, according to data compiled by JLL. Retail accounted for 2.1 per cent and technology took up 1.1 per cent.
Jane Street, one of the world鈥檚 largest quantitative trading firms, will be the anchor tenant in Henderson鈥檚 New Central Harbourfront project and was expected to take up 70 per cent of the office space and ancillary portion of the project鈥檚 first phase.
Meanwhile, in Causeway Bay and Wan Chai, half of the tenants were in the banking and finance industries and around 7 per cent were in insurance, JLL said. Retail and technology accounted for 8.2 per cent and 8.1 per cent, respectively.
Given this, Causeway Bay鈥檚 office segment was proving to be generally more resilient than the four other business districts in the city, JLL said, including Central.
As of May, vacancy rates in Causeway Bay stood at 9 per cent, up from 2.1 per cent in January 2019. In Central, vacancy rates for office space rose to 11.6 per cent from 2.3 per cent over the same period, JLL said.
The firm said Causeway Bay and Wan Chai rents had fallen by 38.9 per cent as of June from a peak in June 2019. By comparison, Central and Hong Kong East saw rents decline by 44.8 per cent and 40.5 per cent, respectively.
With estimated average rents of HK$40 to HK$45 per sq ft in Causeway Bay for this year and next, according to JLL鈥檚 forecast, tenants would get prime office space that is in the centre of Hong Kong Island at a cheaper cost than the HK$60 to HK$70 per sq ft average rents in Central.
Hong Kong鈥檚 best office leasing deals will be 鈥渕ainly in Central and Causeway Bay as there [is a new supply of high-quality] spaces in these two areas,鈥 said Martin Wong, senior director and head of research and consultancy for Greater China at Knight Frank.