Demand for office space in Hong Kong outstripping supply

HONG Kong is likely to face a shortage of around four million to more than eight million sq ft of office space by 2020, a global property consultancy has warned.

This equates to between four and eight office towers the size of Two IFC in Central.

"It is unlikely that long-term demand for office space will be satisfied by the current planning and development progress of major projects," Knight Frank said in its latest Hong Kong Office Market in 2020 report.

The report says Hong Kong could see an undersupply of office space of around four million sq ft, based on current economic and employment growth continuing, but this could increase to more than eight million sq ft, if the local economy expands at a faster pace, the report says.

The calculations are based on the fact that the city's economy expanded at about 3% per annum over a 15-year average, while service-sector employment grew at around 2.2%.

As service sector employers are the main occupiers of office space in Hong Kong, Knight Frank projected their growth would generate an additional demand of about 16.9 million sq ft during 2013 and through to 2020.

But if the economy performs at a higher growth rate of 4% and employment in the service sector expands by 2.7% per year during the period, Hong Kong will need a further 21.2 million sq ft of office space.

However, there will be less than 14 million sq ft of new supply by 2020, the firm forecasts.

"Our analysis shows that by 2020, an additional four to eight office towers of a comparable size to Two IFC is needed, on top of the current development pipeline," it says. "We… see little scope for rent correction in the overall Grade A office market, at least until the end of this decade."

The report added that although the government has launched ambitious plans that could provide about 50 million sq ft of new office space, many planned developments are still in the preparation stage and the effort to rebalance supply-demand levels is unlikely to be realised in the short term.

"The government should speed up its plans, such as turning Kowloon East into another central business district and redeveloping the three government office buildings near Gloucester Road in Wan Chai. Otherwise, we will have to wait beyond 2020 for more office supply," says Knight Frank's head of research for Greater China, Thomas Lam.

Central Harbourfront area, West Kowloon Cultural District, Guangzhou-Shenzhen-Hong Kong Express Rail Link terminus and the redevelopment of Taikoo Place and New World Centre in Tsim Sha Tsui are some major projects that would boost supply. But they will not start to materialise until 2017 at the earliest.

At the end of last year, Hong Kong offered more than 74 million sq ft of Grade A office space of which about 23% was located in Central. The vacancy rate stood at about 3.4%. — SCMP

This story first appeared in The Edge Singapore weekly edition of Mar18-24, 2013.

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