Technology, media, and telecom firms in Hong Kong expected to further decentralise

They are struggling with high office rents in the CBD.

Technology, Media, and Telecom (TMT) firms in Hong Kong are grappling with high office rents in core business areas and looking to achieve efficiencies to reduce their footprint, according to CBRE’s Asia Pacific TMT Sector Trends 2016 report, which examines office space trends in the TMT sector.

While TMT leasing activity has been relatively weak compared to 2015, a small number of newer TMT players are bucking the trend and expanding at a time when more established firms remain inactive or relocate due to cost sensitivity. This mirrors a wider Asia Pacific trend of greater revenue and headcount growth among newer tech companies compared to more established ones.

As a regional sales and marketing hub for TMT firms, Hong Kong would typically see a limited number of large transactions, as the number of staff needed to conduct sales and marketing functions is smaller than the technical R&D teams typically hosted in technology hubs such as Bangalore. Because of this, six of the top 10 leasing transactions in the region in Q2 and Q3 2016 by square footage took place in Bangalore, with two each taking place in Shanghai and Tokyo. All of the top 10 transactions involved more than 100,000 sq. ft. In Hong Kong, the biggest deal involved just 13,000 sq. ft.

"If rents remain at historic highs, and vacancies stay at historic lows in certain districts alongside Hong Kong Island and Kowloon, we may see TMT sector firms further decentralising to emerging districts to achieve cost savings and reconfigure their office space," said Marcos Chan, Head of Research, CBRE Hong Kong, Southern China and Taiwan. "Areas such as Hong Kong East and Kowloon East, where new supply of Grade A office space is scheduled to become available over the next two years, may make more sense for TMT companies looking to manage costs."

The research also reveals that space optimisation is a major concern among Hong Kong's traditional TMT tenants. Many are making changes to their workspace in order to increase flexibility and improve collaboration between employees in an open-area layout. Most innovative TMT companies today prefer open-plan layouts with more breakout areas and a strong focus on employee wellness.

The cautious approach to workspace taken by many of Hong Kong's TMT companies was not mirrored elsewhere in Greater China: Beijing, as the national technology hub and home to Zhongguancun or 'China's Silicon Valley', saw a far higher level of leasing activity among both foreign and domestic TMT companies. Shanghai also saw solid levels of demand, driven primarily by domestic companies in the semiconductor, consumer device, animation and gaming subsectors.