Hong Kong Island's pricey office rents push cash-short tenants to Kowloon

Kowloon saw over 100 new leasing transactions in September.

The steady uptrend in office rental costs at Hong Kong Island is unlikely to let up any time soon as the market continues to grapple with a gaping lack in major premium office supply, according to real estate consultant Knight Frank. 

Also read: Central is the world's priciest prime office market for the third straight year

Apart from the space that is already pre-leased, tenants would have to make do with limited choices over the next three years as the next major office to be launched would come in the form of the old Murray Road multi-storey carpark in Central which is scheduled for completion no earlier than 2022.

The 45-year-old Excelsior Hotel in Causeway Bay which will be redeveloped into an office building and add 700,000 sqft of office space into the market is not expected to come online before 2025.

Also read: Hong Kong may only have ten years before office supply runs out

Policies are also doing little to ease the supply crunch and curb expensive office rents. In fact, the latest draft proposal aiming to redevelop the ex-headquarters site of the Electrical and Mechanical Services Department on Caroline Hill Road will fail to relieve the pressured office market as the supply will not materialise in the coming 7-8 years.

Knight Frank also noted that there were few concrete measures to increase office supply on Hong Kong Island.

“With the market recognising this supply issue, barring any major external shock, there is unlikely to be any downward movement in rents in the Hong Kong Island office market,” said Knight Frank. “Given the considerable difference in rents, we expect to see co-working space providers looking increasingly at the Kowloon market.”

In fact, over 100 new leasing transactions were registered in Kowloon office market in September with average leasing size at around 3,900 sq ft.

Also read: Hong Kong Island office decentralisation gains ground

This adds to the growing competition of flexible workspace operators who are jostling for market share in Kowloon like Cyberport which opened a 20,000 sq ft co-working space in CDW Building in Tsuen Wan called Smart Space 8. Tencent has also tied up with K11 and VS Media to unveil its first co-working space in Hong Kong, Tencent WeStart in Koho, Kwun Tong.

“[I]n the end it’s the relatively cheaper rent that will drive more co-working space providers choosing Kowloon,” the firm added.

Photo from User Alpha - Own work, CC BY-SA 4.0