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Hong Kong Office Leasing Guide

July 2014

Asia Pacific Properties

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Hong Kong Office Leasing Guide July 2014 asiapacificproperties.com

TerminologyLeasing Terminology And Costs – General Market Practices

BUILDING GRADES1. GRADE A

Highest quality building in prime locations with state-of-the-art specifications and highly sought after by the high-profile companies.

GRADE B

These buildings fall just below Grade A buildings and have slightly lesser specifications and quality. They are typically older and just outside prime office locations.

GRADE C

These are older office buildings with low specifications and less appealing to many companies. They are typically sought after for cost conscious firms who feel the need to not be centrally located in the heart of business districts.

LEASING TERMINOLOGY2. GROSS FLOOR AREA (G)

In most buildings, gross floor area is the common method of measurement. It is the area within the perimeter of the outside walls including wall thickness, service core including lift lobbies, passenger and service lift-wells, staircases, lavatories, pantries, mechanical, and electrical areas.

LETTABLE AREA (L)

The net area plus a percentage of common usable area such as lift lobbies and toilets (apportioned if the floor area is sub-divided). Lettable to net efficiency is generally 80-90%.

NET AREA (N)

Sometimes referred to as the usable area or carpeted area, the total net area of the premise is measured from the inside walls and excludes internal structures.

EFFICIENCY (NET/GROSS AREA RATIO)

Most buildings in Hong Kong have an office efficiency of 70%-80%, depending on internal structures that decreases the usable area of an office space. Building units are typically given in gross area square footage with efficiency (for example) of 70% efficiency which then calculates the

usable area or net area.

OPTION TO RENEW

In addition to the initial lease term, some landlords, in exceptional cases, may grant to a coveted tenant user an option to renew for a further term at a rent either pre-agreed upon by both parties or at prevailing market rent at the time of renewal.

EARLY TERMINATION

Early Termination is usually not allowed on the fixed lease period. In some cases, early termination might be allowed based on mutual agreement or by finding a replacement tenant.

REINSTATEMENT

In almost all cases, tenants are contractually required to reinstate the premises to its original condition and remove all alterations prior to handing back the premises to the landlord.

LANDLORD’S PROVISION

These are the fixtures and/or fittings provided by the landlord free of charge. Sprinkler system for fire protection, basic air-conditioning apparatus and false ceilings are commonly provided.

RENT FREE PERIOD

Tenant may be entitled to a rent-free period granted for fit-out works. The average rent-free period is two weeks to two months for two year leases, but may vary according to the size and lease term of the office space taken.

COSTS INCLUDED WITHIN A LEASE3. RENT

Rental rates are generally quoted per square foot and payable monthly in advance.

SECURITY DEPOSIT

Upon the execution of the Tenancy Agreement (TA), tenants are required to pay a security deposit of three months total sum of the following: rental plus management fee, government rates (estimate) and other chargers, if applicable.

MANAGEMENT FEE

Management fees for Grade A and B office space can range from HK$3-

HK$11 per square foot gross per month, depending on age and location of the building. Management fees pay for cleaning and maintenance for common areas and general building upkeep. They typically also include central air-conditioning costs during normal office hours and half-days on Saturdays, though not in all cases.

LEGAL COSTS

Tenants are to bear their own legal costs and are advised to consult their solicitors to ascertain actual fees.

STAMP DUTY

The tax payable to the government is calculated based on the rental price and the length of the lease term. Normally stamp duty tax is shared equally by landlord and tenant. For lease terms of 1-3 years, the stamp duty is 0.5% of the average annual rental, and for lease terms over 3 years, the rate is equal to 1%.

UTILITY COSTS & TELECOMMUNICATION

Tenants are required to apply for a separate electricity and water account for the premise, if applicable. Deposits shall be paid directly by the tenant to the utility providers. Tenants are solely responsible for the installation and service charges of telecommunication usage in their own premises.

FIT-OUT COSTS

Estimated fit-out cost is approximately HKD200-HKD500 per square foot of net area for standard finishing, and up to HKD1,000 per square foot for top-end offices in Grade A buildings. Tenants are required to obtain approval from the landlord for the lay-out plan. Some landlords may have a provision for the vetting fee for amendments, approval for the lay-out and the monitoring of the progress. There is a deposit required to ensure no damage is made to the common areas of the building.



Market Overview

Rental Price And Vacancy

VACANCY RATES & DEMANDThere appears to be some contraction by firms that aggressively expanded in 2011-2012 on the hopes of strong economic growth in China (which has been tempered). Consequently, vacancy rates in Hong Kong have increased slightly from 3.5% at the end of Q4 2013 to 4% at the end Q1 2014, and will likely continue to rise into next quarter. Districts in Hong Kong historically regarded as the core business districts finished the quarter above the average Hong Kong vacancy rate. The rise in the vacancy rates in these districts would have been greater, except that small and medium-sized services firms, who out of caution have been locating in less-expensive, second-tier addresses, returned to core central and business districts.

SUPPLYA total of approximately 1,885,200 square feet of Grade-A office space was scheduled for completion in 2014. Of that amount, only 130,000 sq ft of office space is to be completed on Hong Kong Island (49,400 sq.ft. of which had already been leased). This growth of Grade-A office space, even by Hong Kong standards, is very modest relative to historical levels, thus constraining available supply.

RENTAL RATESGlobal economic uncertainties and additional signs of slowing growth in China are continuing and may foreshadow a downturn in demand and consequently a downturn in rental rates. The views are mixed on rental rate forecasts across Hong Kong. Recent reports suggest office rents in core-business districts will see a meaningful decrease and market correction through 2014, which may provide an opportunity for tenants to obtain Grade-A office space at rates that are attractive. Other industry professionals remain optimistic about Hong Kong’s resiliency and suggest there will be no significant rental rate decreases in core business districts. The answer may hinge not on external economic factors but on the outcome of several substantial lease negotiations currently underway: a failure of those negotiations to achieve renewals at present space requirements may cause the return of a substantial amount of empty space to the market, and landlords may be forced to lower rents to maintain their buildings’ occupancy levels.

Graphs source: Rating and Valuation Department, Hong Kong

Hong Kong Average Office Rental Rates (By District)

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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CentralSheung WanCauseway Bay / Wan ChaiTsim Sha TsuiNorth Point / Quarry Bay

Hong Kong Office Vacancy Rates

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TST Kowloon East

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BusinessDistricts

Major Business Districts

SheungWan

CausewayBayWanchai

Admiralty

Central

Kowloon

KowloonBay

KwunTong

Tsim Sha Tsui

QuarryBay

NorthPoint

Image is not in scale Air Express Line Island Line Kwun Tong Line Tsuen Wan Line Tsueng Kwan O Line Tung Chung Line0 Interchange MTR Stationo MTR Station



DistrictOverview

Sheung WanSheung Wan, historically one of the original settlements by the British, is situated just north-west of the core business district of Hong Kong, Central, and only one stop away on the Island line MTR system. The district is regarded as more of a ‘local’ location for businesses with many shops, restaurants, and historical buildings from the British occupation. Sheung Wan is preferred by many as a cost effective location that is still in close proximity to the Central.

BUILDINGAPPROX.

ASKING RANGE(HKD/sq.ft)

FLOOR PLATE AREA (sq.ft)

YEAR BUILT

The Center 67-100 26,000 (G) 1998

Cosco Tower 55-60 22,000 (G) 1997

Wing On Centre 52 18,740 (G) 1977

Nan Fung Tower 46 10,179 (G) 1973

China Insurance Group Building 45 6,730 (G) 1967

Infinitus Plaza 44 11,899 (G) 1987

FWD Financial Centre 41 8,016 (G) 1994

Shun Tak Centre 40-58 23,956 (G) 1985

One8One Queen's Road Central 38-46 15,451 (G) 1998

Golden Centre 38-42 5,385 (G) 1991

Beautiful Group Tower 37-43 3,904 (G) 2002

Kai Tak Commercial Building 33 5,000 (G) 1974

EIB Centre 31 3,457 (G) 1999

The Pemberton 27 2,814 (G) 2006

Bangkok Bank Building 26 3,565 (G) 1991

China Merchants Building 26 4,620 (G) 1979

Major Tenant

DBS Bank, Goldman Sachs, Compass Serviced Offices, Samsung Electronics, Maples & Calder, Ogilvy & Mather Group

Major Landlord

SHKP, Henderson, Sino Land, Strata-titled

To Central (by metro)Duration 3 minCosts HKD4.00

To Airport (by metro)Duration 36 minCosts HKD104.00



DistrictOverview

CentralCentral is considered as the Central Business District (CBD) in Hong Kong. Most of the newly completed Grade A buildings are concentrated in Central. It is also a preferred location for financial and banking institutions, hedge funds, legal firms supporting the financial sector, and multi-national corporations. Grade A office rents are traditionally the highest in Hong Kong, led by new developments on reclaimed areas such as the International Finance Centre.

BUILDINGAPPROX.



YEAR BUILT

Chater House 165 18,397 - 19,070 (N) 2002

York House 155 8,100 - 8,200 (N) 2006

One & Two International Finance Centre

140-160 21,000 - 23,000 (L) 2003

One, Two & Three Exchange Square 140-150 10,800 - 12,000 (N) 1988

The Landmark 140 12,100-13,200 (N) 1980

Cheung Kong Center 130-150 20,157 - 22,454 (L) 1998

Alexandra House 130 11,000 - 11,800 (N) 1976

Jardine House 130 14,400 - 15,500 (N) 1972

CCB Tower 128 6,900 - 7,400 (G) 2012

Prince's Building 120 20,800 - 21,200 (N) 1965

Hong Kong Club Building 95 8,688 (L) 1984

Bank of China Tower 90 6,095 - 18,500 (L) 1990

Citibank Plaza 85 12,781-17,575 (L) 1992

8 Queen's Road Central 82-90 3,012 (L) 2000

Man Yee Building 70-82 7,326 - 11,482 (L) 2000

Major Tenant

Macquire Group, Jardine Matheson, Hutchison Whampoa, Bank of America, J.P. Morgan Chase, HSBC Holdings, Crédit Agricole (Suisse) SA, Agricultural Bank of China, Bank of China, Citibank Hong Kong, Hang Seng Bank, Standard Chartered Bank, UBS AG, SFC, Royal Bank of Scotland

Major Landlord

SHKP, Hongkong Land, Sino Land, Great Eagle, Strata-title




DistrictOverview

AdmiraltyAdmiralty is another extension of Central, lying to the east of Central, one subway stop away. Because it is the location of the High Court, it is historically the preferred location for legal firms. Admiralty is also home to various 5-star hotels. It is a small district with only a few modern office buildings and a popular shopping mall.

BUILDINGAPPROX.



YEAR BUILT

One & Two Pacific Place 110-115 24,000 - 25,800 (G) 1988 - 1990

CITIC Tower 68 14,700 (G) 1997

Far East Finance Centre 55-58 10,800 (G) 1982

Lippo Centre Tower 1 & 2 45-58 12,500 - 14,890 (G) 1986

Admiralty Centre Tower 1 & 2 40-50 18,469 - 20,318 (G) 1980

United Centre 40 20,000 (G) 1981

Major Tenant

Deliotte, Baker & McKenzie, CCB International Holdings, The Carlyle Group, ENN Energy, Mircosoft Hong Kong

Major Landlord

Swire Properties, Citic, Strata-title

To Central (by metro)Duration 3 minCosts HKD4.50




DistrictOverview

Wan Chai / Causeway BayMoving East from Admiralty, Wan Chai (WC) was historically a red light district but has undergone substantial gentrification in the last 20 years. Many major government departments and international consulates are located in Wan Chai, as well as Hong Kong’s primary convention center.

Meanwhile, Causeway Bay (CB) is a retail center and considered a paradise for shopping and entertainment. Offices located in these two districts are more affordable than in Central though at a slightly discounted level of prestige.

BUILDINGAPPROX.



YEAR BUILT

Three Pacific Place WC 90-95 18,471 (G) 2004

Hysan Place CB 80 17,500 (L) 2012

The Lee Gardens WC 58-68 16,544 (L) 1997

Central Plaza WC 58-60 20,000 (G) 1992

Sun Hung Kai Centre CB 58 16,600 (G) 1981

Harbour Centre WC 58 14,500 (G) 1983

World Trade Centre CB 57 12,770 (G) 1975

28 Hennessy Road WC 57 4,900 (G) 2012

18 Hysan Avenue CB 53 5,044 (L) 1990

Times Square, Tower One & Two

CB 51-62 17,000 - 19,000 (G) 1993

Hopewell Centre WC 50-54 13,500 (G) 1984

Caroline Centre CB 50-52 14,626 (L) 1992

Leighton Centre CB 46-55 11,496 (G) 1976

Sino Plaza WC 44-48 13,022 (G) 1992

One Hysan Avenue CB 44 5,700 (L) 1993

Shui On Centre WC 43-55 11,280 (G) 1987

Harcourt House WC 43 14,000 (G) 1985

Windsor House-ACE Tower CB 40-45 19,055 (G) 1979

AXA Centre WC 26-33 12,750 (G) 1982

Major Tenant

Disney, Société Générale, ICBC International Holdings, Noble Group, China Resources National, Sinopec (HK) Limited, Samsung Electronics, Daimler, Inchcape Far East Company Ltd, Nippon Telegraph & Telephone Corp., AT&T, Intel, KPMG, PepsiCo, Google

Major Landlord

Hysan, SHKP, Swire Properties, Harriman, Sino Land, Strata-title

To Central (by metro)Duration 5 min / 7 min Costs HKD4.50 / HKD5.00

To Airport (by metro)Duration 38 min / 41 minCosts HKD104.50 / HKD105.00



DistrictOverview

Island East“Island East” comprises North Point (NP) and Quarry Bay (QB), two areas that are attracting more tenants with lower rents than in their cousin districts to the west. In Quarry bay in particular, new office towers and substantial urban planning improvements are continuous with newly built/future planning for grade A office spaces within the Taikoo Place cluster, adjacent to the Quarry Bay MTR Station. Built by a major developer, major office buildings are linked by an elevated walkway.

North Point is considered as a residential district for working class. The district has a limited supply of Grade A & B office buildings but still attracts major tenants for their attractive prices and open views.

BUILDINGAPPROX.



YEAR BUILT

Cityplaza QB 48 19,000 - 26,300 (G) 1991

Cityplaza QB 48 19,000 - 26,300 (G) 1991

Taikoo Place QB 45-75 7,074 - 38,857 (G) 1993 - 2008

AIA Tower NP 42-47 14,425 (G) 1998

DCH Commercial Centre QB 42-45 13,734 (G) 1998

@Convoy NP 36-38 10,800 (G) 1991

625 King's Road NP 32-35 11,821 (G) 1998

633 King's Road NP 31-34 11,821 (G) 2007

Citicorp Centre NP 31-32 11,000 (G) 1983

Prosperity Millennia Plaza NP 27-32 8,867 (G) 1999

K Wah Centre NP 25-31 13,498 (G) 1991

148 Electric Road NP 26-30 8,205 (G) 2000

Olympia Plaza NP 23-25 7,882 (G) 1999

Two Chinachem Exchange Square

NP 21 9,432 (G) 1999Major Tenant

For NP: HKU Space Campus, AIA Insurance, Duravit, Wyeth

For QB: Lenovo, Fuji Xerox, City-Bank Call Center, DBS Call Center, PCCW, Swire Travel, Jessica Magazine, IBM, Heineken, Kingfisher

Major Landlord

For NP: Swire Properties, ChinaChem, Cheung Kong, Sino Land, Henderson

For QB: Swire Properties, Citic, Kerry


To Airport (by metro)Duration 48 min / 48 minCosts HKD106.50 / HKD106.50



DistrictOverview

Tsim Sha Tsui / Kowloon WestTsim Sha Tsui, situated on the southernmost tip of Hong Kong’s “mainland,” has become a preferred choice for corporations, particularly sourcing and manufacturing firms, with clientele located in Kowloon, New Territories and/or Mainland China given its access rail line to Shenzhen, comprehensive MTR stations throughout Kowloon and wide variety of cost effective office buildings.

Kowloon West is home to the tallest building in Hong Kong, the International Commerce Center (ICC), with similar specifications to IFC. ICC was completed in 2010 and has become a secondary financial center with leading multinational finance firms as the majority of its tenants.

BUILDINGAPPROX.



YEAR BUILT

International Commerce Centre 78-88 31,182 - 38,864 (L) 2010

The Gateway 43-57 26,050 - 55,800 (G) 1994

Ocean Centre 41-50 17,500 (G) 1977

Tsim Sha Tsui Centre 40-45 32,000 (G) 1980

Empire Centre 40 22,000 (G) 1981

World Finance Centre 38 18,500 (G) 1982

World Commerce Centre 37-60 18,212 (G) 1982

Silvercord Tower 36-45 22,600 (G) 1983

Lippo Sun Plaza 36-40 25,860 (G) 1988

China Hong Kong City 32-38 21,100 (G) 1988

Major Tenant

Natixis, Morgan Stanley, ING, Deutsche Bank, Credit Suisse, Prudential, DHL, General Luxury Brands

Major Landlord

SHKP, Sino Land, Harriman


To Airport (by Metro)Duration 42 min / 21 minCosts HKD109.00 / HKD109.00

From the Kowloon side you may take the airport express from Kowloon station in TST. TST MTR and Kowloon station are only connected by taxi.Graph still indicates travel times and costs to and from Central.



DistrictOverview

Kowloon EastKowloon East (historically an industrial area) is developing as an emerging business district with very attractive rental rates relative to the core CBD of Central. The government has laid out inclusive plans for a ‘CBD2’ complete with low cost housing, commercial and residential space, as well as more green space and light rail throughout the core.

Current redevelopment consists of shifting industrial space to office, and with Grade-A rents at 30-40% the cost of Central as well as additional buildings under construction or planned, it is an attractive option for back-offices and companies that need not be near the financial center.

BUILDINGAPPROX.



YEAR BUILT

One Kowloon 40 24,000 (G) 2006

Enterprise Square 36-40 9,420 - 18,446 (G) 1992 - 2007

C-Bons International Centre 34-35 16,233 - 16,830 (G) 2010

Manhattan Place 33-34 21,180 (G) 2008

Exchange Tower 30-32 26,686 - 27,983 (G) 2008

Millennium City 29-41 8,140 - 25,500 (G) 1998 -2007

Landmark East - Tower 1 & 2 28-40 14,300 - 28,000 (G) 2008

Manulife Financial Centre Tower A & B 25-33 65,376 (G) 2007

Skyline Tower 25-27 23,475 - 28,292 (G) 2003

Chevalier Commercial Centre 20-23 32,000 (G) 1992

Nan Fung Commercial Centre 18 30,914 (G) 1993

Wharf T & T Square 16-18 18,000 (G) 1991 - 1998Major Tenant

For KB: AIA Insurance, Esprit, SCMP, Santa’s Best, Nike, Wai Yuen Tong, HSBC, DHL, HSB

For KT: Standard Charter, Best Choice, BEA, Manulife, Adidas, Reebok, Lenscrafters

Major Landlord

For KB: Kerry, Nan Fung & Sino Land

For KT: SHKP, Harriman & Sino Land

To Central (by metro)Duration 28 min / 27 min Costs HKD13 / HKD13

To Airport (by Metro)Duration 50 min / 54 minCosts HKD113.0 / HKD113.0



Contact Information

commercial@asiapacificproperties.comwww.asiapacificproperties.com

HEADQUARTERS

14/F Wilson House19-27 Wyndham StreetCentral, Hong Kongtel +852 2281 7800fax +852 2810 6981EAA License: C-002320

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Suite 601 Plaza 66 Phase 21366 Nanjing Xi RoadShanghai 200040 P.R. Chinatel +8621 6288 7333fax +8621 6288 7371

BEIJING OFFICE

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GUANGZHOU OFFICE

Unit 841 The Garden Tower368 Huanshi Dong LuGuangzhou 510064 P.R. Chinatel +8620 8365 2922fax +8620 8365 2923

The particulars are set as a general guide. Although every care has been taken to ensure that the information is correct at the time of printing, prospective lessees are advised to satisfy themselves on the accuracy of all statements.All rights reserved. No part of this publication may be reproduced in any form without the prior permission of Asia Pacific Properties.

Joshua [email protected]

Roland BurtonAssociate Director - Shanghai Commercial [email protected]

Geoffrey GuoManager - Shanghai Commercial [email protected]

Albert ChanManager - Hong Kong Commercial [email protected]

Joyce HeAssistant Manager - Shanghai Commercial [email protected]

Beverly LW [email protected]

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GVA Worldwide optimises client portfolios locally and around the world. It serves the real estate needs of clients including occupiers, multi-national corporations, major space users, developers, owners, institutions, lenders and investors.

asia pacific · pdf file · 2014-06-23hong kong office leasing guide july 2014 asia...

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