Executive Director, Office Services
Wendy has a long history of success in the commercial real estate industry and has over 20 years of experience in leading significant transactions and developing new business initiatives for multinational clients across a wide geographic range.
She specialises in representing banking, private equity and other financial firms, and insurance companies.
According to the latest statistics by Rates & Valuation Department, Hong Kong office rents hit a new record high in July with Grade A office rents in Central having increased by 4.2% YTD, achieving new record highs for seven consecutive months in 2017. From our experience, a high rent environment is forcing numerous occupiers to consider more cost-effective locations. However, it also provides an opportunity for business leaders to reconsider their CRE strategies.
Decentralisation to Cost-effective Locations
Quarry Bay is traditionally regarded as a back-office destination by many, a district which offers dual benefits of costs reduction through splitting operations while remaining on Hong Kong Island. However, this mentality has shifted, as evidenced by the relocation news of Freshfields Bruckhaus Deringer, Alliance-Bernstein and BNP Paribas, who are all taking up space in Swire Properties’ Taikoo portfolio as their main offices.
Wong Chuk Hang remains another viable option for cost-conscious tenants who wish to remain on the Island. Some of the notable transactions were AXA Insurance, Insurance Authority, HOK (Architecture firm) and Valentino (luxury retail brand). Due to the high rents environment across Central, hedge funds are also exploring this decentralised location, several commitments have been confirmed so far.
Workplace Solutions and Flexible Workspace
While some occupiers are able to consider relocating to cost-saving districts, others remain rooted in core districts because of the need to maintain close proximity to their client base. These occupiers are instead considering making changes to their workspace to increase efficiency, reduce footprint while adopt a more innovative and inviting work environment. As a general rule, offices across Hong Kong tend to be anywhere between 40-50% underutilised. Therefore, when calculating Hong Kong’s floorplan as one of the most expensive office markets in the world, there is a huge drive to get more out of less.
Meanwhile, Hong Kong’s growing co-working sector offers fully fitted and furnished space under flexible lease terms, as well as the opportunity for users to network and collaborate. Companies that require temporary swing-space during decentralisation are beginning to accept and understand the values these providers bring in. Some companies are considering “Flex & Core” solution, a term coined by Colliers in which tenants take up “core” space in a development for their fixed headcount and access a “flex” solution in the same development through a flexible workspace provider. For divisions or companies with a fluctuating headcount, flexible workspace provides a fully fitted solution with no CAPEX requirement, together with the flexibility of 3-12 months’ leases instead of the traditional 3-year term. Occupiers with headcounts ranging from 50 to 600 persons are adopting this strategy.
With the high rents environment, low vacancy and limited supply on Hong Kong Island, I do expect more and more occupiers will seriously explore creative solutions in the future to rein in rental costs.