An extension of the CBD
Hong Kong’s decentralisation trend has been driving office demand and rental growth, accelerating the transformation of major commercial districts on both the Island and Kowloon. Despite the government’s promotion of Kowloon East as the city’s CBD2, financial institutions, legal firms and large-scale multinational companies still prefer retaining operations on the Hong Kong Island.
Due to its proximity to the CBD, Island East serves as a decentralised area and a destination for middle and/or back offices for all sorts of multinational companies. However, this year – in 2019, due to an increase in Grade A office supply as well as the improved connected infrastructure, rather than being a decentralised market, Island East is ready to reposition itself as an extension of Hong Kong's CBD.Island East has already surpassed both Wanchai and Causeway Bay in becoming the second largest office market on the Island, with a net floor area of 10.7 million sq ft (994,063 sq m) of Grade A office space. Furthermore, with a low vacancy rate of below 2% and an annual net take-up of 1.1 million sq ft (102,193 sqm) in 2018 – almost 40% of the city’s total net take-up, Island East can be placed as one of the city’s most robust office markets. Adding to that is the recent completion of the 4.5 km Central-Wanchai bypass, which travels from Central to North Point via Wanchai through a traffic tunnel, the bypass has brought new life to Island East.
Tenants, including international banks and legal firms, have been quick to make a moves to enjoy a new view of the harbour. As an extension of the CBD, Island East is likely to become the next destination for multinational companies to place their front and/or main offices.
A district not to be bypassed
By 2022, Island East’s office market should expand with a gross floor area of 1.7 million sq ft (157,935 sqm) of new office space. With this in mind and the new supply staying low on the Hong Kong Island over the next five years, tenants considering relocating within the Island should seize the leasing opportunity to enjoy exclusive access to new prime office space with a relatively reasonable rental cost.
North Point is a particular point of interest, as it benefits the most from its proximity to the bypass exits. The district has been the second most accessible district on the Island, with transportation facilities comparable to Central, which include bus terminals, a ferry terminal, tram stations, as well as the only other MTR interchange station connecting to Kowloon apart from the Central Station.
Office buildings in North Point offer great value to tenants, with the district’s average Grade A office rents at 11% and 38% lower than its adjoining markets Quarry Bay and Causeway Bay, respectively. North Point did lose a lot of its splendor in the past decades, as its limited supply after the year 2000 could not compete with markets such as Kowloon East and Wong Chuk Hang, which are quickly rising.
Still, in 2018, North Point invigorated itself with several new Grade A office buildings entering the market.
For example, 18 King Wah Road, a newly completed Grade A office building redeveloped from an old industrial building has prompted several international companies to look into the area again. North Point’s commercial cluster continues to expand further with more landlords seeing the opportunities and investing in redevelopments. This year, in 2019, two upcoming Grade A office buildings, K11 ATELIER King’s Road from New World Development and 218 Electric Road in Fortress Hill from Herderson Land, will bring an additional 500,000 sq ft (46,451 sq m) into the area.
Given North Point’s enhanced accessibility, investors are set to ‘pour new wine into old bottles’ by redeveloping old properties into new commercial buildings. For instance, the State Theatre site has been applied for compulsory sale and is being planned as a mix-use development that will include commercial and hotel spaces.
THE KEY TO REPOSITIONING:
A new promenade
Many of the world’s top CBDs, including Hong Kong’s CBD, take advantage of an attractive waterfront to help a commercial district evolve as a world-class CBD. A well-planned promenade can not only add extra value to developments amid the rising awareness of staff wellness, but can help energise a business community and society by providing a more pedestrian-friendly area full of new experiences.
In February 2019, the government approved the rezoning of industrial sites along the harbourfront at Hoi Yu Street for low-rise-and-density commercial developments, providing retail, hotel and office facilities. The decision is to enhance Island East’s waterfront and enable the development of a pedestrian promenade of about two kilometres from Oil Street in North Point to Hoi Yu Street in Quarry Bay; as proposed in the Hong Kong Island East Harbour-front study conducted by the Planning Department in 2012. Meanwhile, the development of retail, hospitality, leisure and office spaces will further enhance the business amenities of Island East.
As the second largest office market on the Island, together with its enhanced connectivity and improving business environment, Island East, particularly North Point, should quickly transform to a top-tier commercial hub and a true part of the CBD.
If you would like to know more about the Central – Wanchai bypass, the future development of Island East and some of its districts, or are interested in knowing what properties are in the area, reach out to Fiona Ngan (email@example.com) Head of Office Services. She would be more than happy to tell you more about what’s happening in the area.