A strong global economic environment suggests a positive outlook for business and headcount expansion. However, rental spike in the core-CBD area has put many traditional office tenants on the defensive. Colliers’ recent Occupier Survey reveals that relocation and alternative workplace solutions will be the answer to the dilemma between business expansion and restrained office budget.
Flat office budget growth despite a positive business outlook
Companies are becoming more optimistic about their business prospect with the majority of respondents expecting their businesses to either expand (44%) or remain at the same level (40%) in the coming three years, with only 3% of the respondents expecting a contraction. The strong business sentiment and outlook suggest a sustainable growth of headcounts with 38% of respondents expecting more hires in the coming years. However, the expansionary business sentiment conflicts with the anticipated flat office budget, therefore, companies are bound to explore various office strategies to rein in on soaring office rents.
Location and rental costs are the most important office selection factors
Location (36%) and rental costs (34%) are the most important factors for occupiers in choosing their offices. Despite increasing competition for offices in Central, the core-CBD is still considered the preferred location for banking and finance companies as they believe location is more important because of the CBD’s strong financial background. While building quality (12%) and landlord’s background (2%) are deemed to be the least concern in office selection, these factors have already been reflected in the rental costs amid a highly elastic supply market.
Rising Popularity of Fringe-CBD and Decentralised Locations
While most banking and finance companies preferred to stay in Central, insurance companies have opted to move into decentralised office hubs as they are highly sensitive to rental fluctuations. As revealed in the survey results, fringe-CBD (Sheung Wan, Wanchai and Causeway Bay) are the most popular relocation destinations in which 30% of the respondents consider it as the top choice. For instance, Lee Garden Three, a premium Grade A office building in Causeway Bay to be completed in Q3 2017, has secured pre-lease commitments from Maybank, Cathay United Bank and Bank SinoPac. With the majority of companies from the Banking and Finance sectors preferring to remain in Central, these corporations serve as minority cases in which location is regarded less important than rental consideration.
Alternative Workplace Solutions – the Emerging Real Estate Strategies
Alternative workplace solutions offer good opportunities for cost reduction when companies are not planning to raise their rental budget while increasing their headcounts. However, office layouts for Hong Kong companies are still dominated by the traditional approach and the open plan design. Only 13% of respondents have adopted Activity-Based Working (ABW) or Agile Workplace approaches. This is due to occupiers’ low awareness of office space efficiency, in which 69% of them have little idea or are uncertain about the utilisation rate of their offices. As the Occupier Survey points out that the core-CBD will still be considered as the premier location for the Banking and Finance industries, they will be expecting more rental hikes in the
coming years as a result of the influx of PRC companies into the area. Fortunately, alternative workplace solutions will offer excellent cost-saving opportunities for these companies to maintain a flat rental budget while increasing their headcounts at the same time.