Hong Kong Office Market: The Global Perspective A victim of our own - - PowerPoint PPT Presentation

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Hong Kong Office Market: The Global Perspective A victim of our own - - PowerPoint PPT Presentation

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Hong Kong Office Market: The Global Perspective A victim of our own success? 12 March 2011 Dr. Nick Axford Head of Research, Asia Pacific CB Richard Ellis Strong economic recovery in 2010 GDP/Vacancy Rate (%) Net Absorption (sq

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12 March 2011

Hong Kong Office Market: The Global Perspective “A victim of our own success?”

  • Dr. Nick Axford

Head of Research, Asia Pacific CB Richard Ellis

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SLIDE 2

Strong economic recovery in 2010 …

  • 10.0%
  • 7.5%
  • 5.0%
  • 2.5%

0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

  • 800,000
  • 600,000
  • 400,000
  • 200,000

200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 Hong Kong Real GDP

Source: Oxford Economics

Net Absorption (sq ft) GDP/Vacancy Rate (%)

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SLIDE 3

… which links closely to rising demand for offices …

  • 10.0%
  • 7.5%
  • 5.0%
  • 2.5%

0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

  • 800,000
  • 600,000
  • 400,000
  • 200,000

200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 Net Abs (4Q Avg) Real GDP

Source: Oxford Economics, CB Richard Ellis

Net Absorption (sq ft) GDP/Vacancy Rate (%)

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SLIDE 4

… which has resulted in falling vacancy

  • 10.0%
  • 7.5%
  • 5.0%
  • 2.5%

0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

  • 800,000
  • 600,000
  • 400,000
  • 200,000

200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 Net Abs (4Q Avg) Vacancy Rate

Source: CB Richard Ellis

Net Absorption (sq ft) GDP/Vacancy Rate (%) 5.6%

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Vacancy is particularly low in Central

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% Sheung Wan Central A1 Central Admiralty Wanchai CWB North Point HK East TST Kwln East

Grade A Vacancy (% )

HK Island 3.6% All Kowloon & New Territories 7.9%

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Which has pushed rents up sharply

20 40 60 80 100 120 140 160 180 200 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Feb- 11 Net Effective Rents (HK$psf/mth) Central A1 Central Admiralty Sheung Wan Wan Chai Hong Kong East

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SLIDE 7

Rents rose 35% last year .. On average!

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Central Grade A1 Causeway Bay Central Hong Kong East Wan Chai Admiralty Sheung Wan North Point % Change in 2010

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Hong Kong is the most expensive office market in the world

50 100 150 200 250 Hong Kong Central A1 New York Midtown London West End Inner Tokyo West Kowloon Paris CBD London City Singapore Paris La Defense Sydney London Canary Wharf Shanghai Beijing US$ psf per annum Source: CBRE Research

Prime Office Rent in Q4 2010 “Whole Floor, Middle Floor, Top Tier Office Buildings”

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Net Floor Area (Million sf)

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 2 1 2 1 1 * 2 1 2 * 2 1 3 * 2 1 4 *

Annual New Supply 15-Year Annual Average (1995-2010) Annual Average (2011-2014)

Compares with average annual net absorption

  • f 1.8 million sq ft

Overall New Supply Reducing

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Net Floor Area (Million sf)

0.0 0.5 1.0 1.5 2.0 2.5 2011 2012 2013 2014 2011 2012 2013 2014

All supply 3.8 million sf

Overall Hong Kong New Supply

HK Island Kowloon

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Overall Hong Kong New Supply

Net Floor Area (Million sf)

0.0 0.5 1.0 1.5 2.0 2.5 2011 2012 2013 2014 2011 2012 2013 2014

2.3 million sf

HK & Kowloon Office Supply With Floorplates Above 10K sf HK & Kowloon Office Supply With Floorplates Below 10K sf

1.5 million sf

HK Island Kowloon

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Net Floor Area (Million sf)

0.0 0.5 1.0 1.5 2.0 2.5 2011 2012 2013 2014 2011 2012 2013 2014

HK & Kowloon Office Supply With Floorplates Above 10K sf And Single Landlord HK & Kowloon Office Supply With Floorplates Below 10K sf And/or Strata-Title Landlord

2.7 million sf 1.1 million sf

Overall Hong Kong New Supply

HK Island Kowloon

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The Trade-Off For Occupiers ….

EVERY location decision requires compromise … but probably more so in HK than anywhere else! Size & operational footprint Floorplate & specification Building ownership Location COST! “You pay your money and you make your choice … !”

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The Trade-Off For Occupiers ….

EVERY location decision requires compromise … but probably more so in HK than anywhere else! Size & operational footprint Floorplate & specification Building ownership Location COST! But Hong Kong is not the only option …

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Hong Kong offers huge advantages, but …

Availability and cost of business accomodation

0% 5% 10% 15% 20% 25% 30% 35% 2004 2005 2006 2007 2008 2009 2010

Unfavourable Favourable

33% 18%

  • 40%
  • 20%

0% 20% 40% 60% 80%

Free flow of information Simple tax system and low tax rate Corruption-free government Absence of exchange controls Communication, transport, infrastructure Free port status Geographical location Availability of financial services Rule of law and independent judiciary Business/professional support services Political stability and security Business opportunity in mainland China Level playing field Proficiency in English Productivity of staff Protection of intellectual property rights Business-friendly economic policy Availability of international school places Availability and cost of staff Environmental quality Availability/cost of business accommodation Availability/cost of residential accommodation

  • 15%
  • 23%

Factors in the choice of location for a regional office operation Balance of “Favourable” over “Unfavourable” Source : 2010 Annual Survey, Census and Statistics Department of Hong Kong.

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What is at stake here? This is NOT about the long term survival of Hong Kong as one of Asia’s premier business locations … But it IS about whether we can capitalise

  • n the extraordinary opportunity we have over

the next ten years.

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CBD East Expansion

020

Lize Financial Business District Chang’an Avenue Financial Street Finance Street West Expansion CBD Central Area

Finance Street West Expansion Planned Office GFA: 28 million sq ft

  • Est. Completion: 2015-2

CBD East Expansion Planned Office GFA: 32 million sq ft

  • Est. Completion: 2016-2018

Beijing – 102 million sq ft

Lize Financial Business District Planned Office GFA: 42 million sq ft

  • Est. Completion: 2020
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The New Beijing

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Shanghai – 64 million sq ft

B u n d F i n a n c i a l C l u s t e r Lit Luji e’s re i

ft

tle azui Lujiazui East Expansion Zhuyuan Huamu Hongqiao Business District Peopl Squa Huaiha Road Nanjing West Road

Hongqiao Business District Core Area Phase 1 Office GFA: 10 million sq ft

  • Est. Completion: 2012 - 2013

Bund Financial Cluster Commercial GFA: 24 million sq

  • Est. Completion: 2020

Lujiazui East Expansion Office GFA: c. 30 million sq ft

  • Est. Completion: 2011-15
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The New Shanghai

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Shenzhen – 50 to ??? million sq ft

Futian Centre

Futian CBD Luohu CBD

Qianhai Centre

Nanshan Houhai Area Qianhai Area

Futian CBD Office GFA: 27 million sq ft

  • Est. Completion: 2011-2015

Nanshan Houhai Area Office GFA: 15 million sq ft

  • Est. Completion: 2011-2020

Qianhai

  • Est. Total GFA: 100 million sq ft
  • Est. Completion: 2015-2020

Luohu CBD Office GFA: 10 million sq ft

  • Est. Completion: 2011-2015
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Completed By 2013 After 2013

Qianhai Port City

Shenzhen Longhua - Qianhai

Longhua New City

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THIS is the map you need to look at …!

Singapore Shanghai Beijing Hong Kong/Shenzhen

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Marina B Place Shent Way jong gar Tampines Paya Lebar Jurong East ay

Singapore – 40 million sq ft

Marina Bay Office GFA : 30 million sq ft Over the next 15 yrs + Planning Released: 2008 Jurong East Office GFA : 5 million sq ft Over the next 10-15 years Planning Released: 2008 Raffles

  • n

Tan Pa Paya Lebar Office GFA : 5 million sq ft

“Ensure sufficient land to support economic activity”

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SLIDE 25

Singapore: Going head to head …

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London: From derelict docks ….

Canary Wharf, London, 1985

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… to an 18 million sq ft financial hub

Canary Wharf, London, Present Day

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High quality affordable offices for large space users

50 100 150 200 250 Hong Kong Central A1 New York Midtown London West End Inner Tokyo West Kowloon Paris CBD London City Singapore Paris La Defense Sydney London Canary Wharf Shanghai Beijing US$ psf per annum $132 $83 $57

  • 31%

Source: CBRE Research

Prime Office Rent in Q4 2010 “Whole Floor, Middle Floor, Top Tier Office Buildings”

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SLIDE 29

Paris: La Defense

Decision to build a new business district: 1955 First development plan approved: 1964 RER link to CBD (in 4 mins): 1970

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La Défense today: 35 million sq ft

3,500 companies 12 of France’s 20 largest firms 15 of the world’s 50 largest firms 170,000 jobs 20,000 inhabitants 11 ha of landscaped areas

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High quality affordable offices for large space users

50 100 150 200 250 Hong Kong Central A1 New York Midtown London West End Inner Tokyo West Kowloon Paris CBD London City Singapore Paris La Defense Sydney London Canary Wharf Shanghai Beijing US$ psf per annum $99 $68

  • 31%

Source: CBRE Research

Prime Office Rent in Q4 2010 “Whole Floor, Middle Floor, Top Tier Office Buildings”

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CB Richard Ellis | Page 32

The benefits of 20:20 hindsight …!

Strong, active Government support Clarity of vision Certainty of delivery Transport infrastructure Time … Cohesive masterplan: places, not just buildings

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Short term: Do what you can

Bring forward potential sites Clear commitment, definitive timescale Use Government occupancy proactively

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SLIDE 34

“Hong Kong is not (just) an Island”

KAI TAK

CBD and its peripherals Key decentralised areas Potential prime

  • ffice clusters
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Longer term: Create confidence and certainty

Clear, transparent, bold, visionary plans Balancing the needs of business with those of the wider community Use Government relocations and infrastructure to stimulate activity Potential is great; but business needs certainty and timescales

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SLIDE 36

A room with a view …

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12 March 2011

Hong Kong Office Market: The Global Perspective “Building on its own success!”

  • Dr. Nick Axford

Head of Research, Asia Pacific CB Richard Ellis