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

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 ft) 17.5% 1,400,000 15.0% 1,200,000 12.5% 1,000,000 10.0% 800,000 7.5% 600,000 5.0% 400,000 2.5% 200,000 0.0% 0 -2.5% -200,000 -5.0% -400,000 Hong Kong Real GDP -7.5% -600,000 -10.0% -800,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Oxford Economics

… which links closely to rising demand for offices … GDP/Vacancy Rate (%) Net Absorption (sq ft) 17.5% 1,400,000 15.0% 1,200,000 12.5% 1,000,000 10.0% 800,000 7.5% 600,000 5.0% 400,000 2.5% 200,000 0.0% 0 -2.5% -200,000 -5.0% -400,000 Net Abs (4Q Avg) -7.5% -600,000 Real GDP -10.0% -800,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Oxford Economics, CB Richard Ellis

… which has resulted in falling vacancy GDP/Vacancy Rate (%) Net Absorption (sq ft) 17.5% 1,400,000 15.0% 1,200,000 12.5% 1,000,000 10.0% 800,000 7.5% 600,000 5.6% 5.0% 400,000 2.5% 200,000 0.0% 0 -2.5% -200,000 -5.0% -400,000 Net Abs (4Q Avg) -7.5% -600,000 Vacancy Rate -10.0% -800,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: CB Richard Ellis

Vacancy is particularly low in Central Grade A Vacancy (% ) 13% 12% 11% 10% All Kowloon & 9% New Territories 7.9% 8% 7% 6% HK Island 3.6% 5% 4% 3% 2% 1% 0% Sheung Central Central Admiralty Wanchai CWB North HK East TST Kwln Wan A1 Point East

Which has pushed rents up sharply Net Effective Rents (HK$psf/mth) 200 180 160 140 120 100 80 60 40 20 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Feb- 11 Central A1 Central Admiralty Sheung Wan Wan Chai Hong Kong East

Rents rose 35% last year .. On average! % Change in 2010 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Central Causeway Central Hong Wan Chai Admiralty Sheung North Grade A1 Bay Kong East Wan Point

Hong Kong is the most expensive office market in the world Prime Office Rent in Q4 2010 “Whole Floor, Middle Floor, Top Tier Office Buildings” 250 200 US$ psf per annum 150 100 50 0 Hong New York London Inner West Paris London Singapore Paris La Sydney London Shanghai Beijing Kong Midtown West End Tokyo Kowloon CBD City Defense Canary Central Wharf A1 Source: CBRE Research

Overall New Supply Reducing Net Floor Area (Million sf) 5.0 4.5 4.0 3.5 3.0 Compares with average annual net absorption 2.5 of 1.8 million sq ft 2.0 1.5 1.0 0.5 0.0 * * * * 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Annual New Supply 15-Year Annual Average (1995-2010) Annual Average (2011-2014)

Overall Hong Kong New Supply Net Floor Area (Million sf) HK Island Kowloon 2.5 2.0 All supply 3.8 million sf 1.5 1.0 0.5 0.0 2011 2012 2013 2014 2011 2012 2013 2014

Overall Hong Kong New Supply Net Floor Area (Million sf) HK Island Kowloon 2.5 HK & Kowloon Office Supply HK & Kowloon Office Supply 2.0 With Floorplates Above 10K sf With Floorplates Below 10K sf 1.5 million sf 2.3 million sf 1.5 1.0 0.5 0.0 2011 2012 2013 2014 2011 2012 2013 2014

Overall Hong Kong New Supply Net Floor Area (Million sf) HK Island Kowloon 2.5 HK & Kowloon Office Supply HK & Kowloon Office Supply 2.0 With Floorplates Above 10K sf With Floorplates Below 10K sf And Single Landlord And/or Strata-Title Landlord 1.1 million sf 2.7 million sf 1.5 1.0 0.5 0.0 2011 2012 2013 2014 2011 2012 2013 2014

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 … !”

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 …

Hong Kong offers huge advantages, but … Factors in the choice of location for a regional office operation Balance of “Favourable” over “Unfavourable” Availability/cost of residential accommodation - 23% Availability/cost of business accommodation - 15% Environmental quality Availability and cost of staff Availability and cost of business Availability of international school places accomodation Business-friendly economic policy 35% Protection of intellectual property rights 33% Productivity of staff 30% Proficiency in English 25% Level playing field Business opportunity in mainland China 20% Political stability and security 15% Business/professional support services 18% Rule of law and independent judiciary 10% Availability of financial services Unfavourable 5% Favourable Geographical location Free port status 0% 2004 2005 2006 2007 2008 2009 2010 Communication, transport, infrastructure Absence of exchange controls Corruption-free government Simple tax system and low tax rate Source : 2010 Annual Survey , Census and Statistics Department of Hong Kong. Free flow of information -40% -20% 0% 20% 40% 60% 80%

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 on the extraordinary opportunity we have over the next ten years.

Beijing – 102 million sq ft CBD East Expansion Planned Office GFA: 32 million sq ft Est. Completion: 2016-2018 Finance Street West Expansion Planned Office GFA: 28 million sq ft Est. Completion : 2015-2 020 Financial Street Street West Finance Expansion CBD East Expansion CBD Central Area Chang’an Avenue Lize Financial Business District Lize Financial Business District Planned Office GFA: 42 million sq ft Est. Completion: 2020

The New Beijing

Shanghai – 64 million sq ft Hongqiao Business District Core Area Phase 1 Lujiazui East Expansion Hongqiao Business District Office GFA: 10 million sq ft Office GFA: c. 30 million sq ft Est. Completion : 2012 - 2013 Est. Completion: 2011-15 Lit tle Luji azui Lujiazui East Expansion Peopl e’s B u Squa re n d F i n Nanjing a n Zhuyuan West Road c i a l Huaiha i C l Road u s t e r Bund Financial Cluster Commercial GFA: 24 million sq ft Huamu Est. Completion: 2020

The New Shanghai

Shenzhen – 50 to ??? million sq ft Futian CBD Office GFA: 27 million sq ft Qianhai Est. Completion : 2011-2015 Est. Total GFA: 100 million sq ft Est. Completion : 2015-2020 Futian Centre Luohu CBD Futian CBD Qianhai Area Luohu CBD Office GFA: 10 million sq ft Qianhai Centre Est. Completion : 2011-2015 Nanshan Houhai Area Nanshan Houhai Area Office GFA: 15 million sq ft Est. Completion: 2011-2020

Shenzhen Longhua - Qianhai Longhua New City Qianhai Port City Completed By 2013 After 2013

THIS is the map you need to look at …! Hong Kong/Shenzhen Shanghai Beijing Singapore

Singapore – 40 million sq ft “Ensure sufficient land to support economic activity” Paya Lebar Office GFA : 5 million sq ft Paya Tampines Lebar Jurong East Jurong East Raffles Place Shent on Office GFA : 5 million sq ft Way Marina Bay Tan jong Over the next 10-15 years Pa gar Office GFA : 30 million sq ft Planning Released: 2008 Over the next 15 yrs + Planning Released : 2008 Marina B ay

Singapore: Going head to head …

London: From derelict docks …. Canary Wharf, London, 1985

… to an 18 million sq ft financial hub Canary Wharf, London, Present Day

High quality affordable offices for large space users Prime Office Rent in Q4 2010 “Whole Floor, Middle Floor, Top Tier Office Buildings” 250 200 US$ psf per annum 150 $132 100 $83 - 31% $57 50 0 Hong New York London Inner West Paris London Singapore Paris La Sydney London Shanghai Beijing Kong Midtown West End Tokyo Kowloon CBD City Defense Canary Central Wharf A1 Source: CBRE Research

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

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

High quality affordable offices for large space users Prime Office Rent in Q4 2010 “Whole Floor, Middle Floor, Top Tier Office Buildings” 250 200 US$ psf per annum 150 $99 - 31% 100 $68 50 0 Hong New York London Inner West Paris London Singapore Paris La Sydney London Shanghai Beijing Kong Midtown West End Tokyo Kowloon CBD City Defense Canary Central Wharf A1 Source: CBRE Research