There are only around 20.1 million sq ft of potential office space from GLS.
The government is estimated to have enough land that could deliver about 10 years worth of commercial office supply in yet another sign of Hong Kong’s chronic land shortage forming the source of its perennial property woes, according to real estate consultant JLL.
This translates to around 20.1 million sq ft of potential office space that could be delivered from future government land sales (GLS) with the majority of office space (14.7 million sq ft) to be located in Kowloon and Hong Kong Island (5.4 million sq ft).
Grade A office space in Hong Kong has increasingly become reliant on GLS rather than redevelopment of privately-held land with estimates that the former could account for over 60% of Grade A office supply between 2018 and 2022 from a little over 30% in 2008 to 2017, Denis Ma, head of research at JLL said in a statement, adding that 100% of Grade A offices set for completion in 2022 will come from GLS.
“The Government needs to ramp up land supply for commercial office development if it is to ensure that Hong Kong continues to have room for businesses to grow and be competitive,” urged Joseph Tsang, managing director at JLL.
With the assumption that demand for Hong Kong’s offices will remain heated in line with historical trends of 2 million sqft take-up over the past 30 years, office supply will quickly run out as vacancy rates have been tightening over the past two decades with 37% of multinational corporations embracing Hong Kong as the location for their Asian headquarters.
“The vacancy rate for the entire Grade A office market has fallen from 11.9% at the start of 1999 to just 4.2% at the end of August, whilst the vacancy rate in four of the city’s major office submarkets has fallen below 2%--1.5% in Central, 1.6% in Wanchai/Causeway Bay, 1.4% in Tsimshatsui and 1.6% in Hong Kong East,” the firm said in a report.
Over the last 20 years, Grade A office stock has grown by 1.3 million sqft annually but net absorption has averaged at around 1.5 million sq ft per year, representing a shortfall of around 200,000 sq ft. In fact, office net absorption rate for the first half of the year has already broken the full-year record from 2017, according to data from CBRE.
Compounded on an annual basis, the low vacancy environment in the office sector has pushed the city’s rental costs to greater heights and gave Hong Kong the unenviable recognition as the most expensive office market in Asia Pacific, which could diminish its attractiveness to MNCs.
As rents maintain their heated uptrend, MNCs opting to save on overhead costs may instead move out of the costly SAR and opt for Shanghai, Tokyo, Sydney and Singapore where office supply is higher than Hong Kong.
“Hong Kong will lose its competitive edge as the barrier to entry for companies looking to enter or grow specific parts of their business, particularly Technology Research and Development will be stifled, in part, by high rent and little office space availability compared to alternatives,” concluded Alex Barnes, head of markets at JLL.
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