Hong Kong leads rebound in global office markets

HONG KONG: Thanks to ample liquidity and a helping hand from mainland financial institutions, Hong Kong's office market has recovered from the global financial crisis better than other main financial centres around the world, says property consultancy CB Richard Ellis (CBRE).

The credit crisis that unfolded around the world in the wake of the collapse of the sub-prime mortgage market in the US in mid-2007 did not diminish the keenness of mainland banks and insurance companies to establish a foothold in Hong Kong, according to the managing director of CBRE's local office, Craig Shute.

"The presence of these mainland financial institutions has helped the city's office market to regain stability relatively quickly," he said.

Shute points to a study CBRE has released that examined the impact of the crisis on office markets in four international financial centres: Hong Kong, New York, London and Tokyo. The study tracked key differences in the unrolling effects of the crisis and the trends that emerged as markets began recovering.

"Hong Kong was saved by the fact that its financial institutions were not heavily involved in sub-prime structured loans, and very few local companies were pushed to the edge of bankruptcy," Shute said.

As a result of historically low interest rates, excess liquidity and the tight supply of new office space, both local and mainland investors therefore continued to be lured into the market, the study found.

Although Hong Kong's economy experienced increased volatility in the first big cyclical downturn since the 1998 Asian financial crisis, it was in better shape to weather the financial storm than the US and Europe, which were at the epicentre of the crisis, the study said.

Andrew Ness, executive director of Asia research for CBRE, said office demand in New York and London was affected more quickly and directly by the global banking crisis than the two Asian cities.

London office rents declined in the first quarter of 2008, while Hong Kong rents did not turn down appreciably until the third quarter of the year.

Despite these timing differences, the peak-to-trough falls in office rents across the four cities were within a narrow range, from 35.4% in London to 38.5% in Hong Kong, with New York and Tokyo both dropping 37%.

Hong Kong's office-leasing market entered into a downturn in the third quarter of 2008 and accelerated in the fourth quarter, according to the report.

Average monthly rentals in Central dropped 37% in these two quarters, the biggest downward adjustment in the market since 2004. The vacancy rate in Central also surged, from historic lows of about 0.9% in the middle of 2008 to 5% last year.

Grade A office rents in Central rose 3.63% quarter on quarter for the three months to December last year. By comparison rents in London remained unchanged but New York declined 5.89% and Tokyo 4.67% during the same period.

The relative strength of Hong Kong showed in the investment market, where CBRE found that grade-A office transaction volumes of more than HK$100 million (RM42.84 million) were recorded in the third quarter of last year -- about 16 times the level recorded at the lowest point in the market trough during the first quarter in the year.

The total value of office transactions in central London saw a year-on-year 2.7% decline to £7 billion (HK$35.12 billion) last year, down from a record £17.5 billion in 2007.

Fuelled by the depreciation of the pound, it said almost 80% by value of acquisitions last year had involved overseas investors.

But sales of New York office properties had come to a near standstill, with only eight office transactions each worth more than US$30 million (RM99.69 million) last year, far below the annual average number of 60 such deals over the past five years.

In Tokyo, the study found no sign recovery and vacancy rates rose to 6.5% in the last quarter of last year from 3.9% in the first. – South China Morning Post