Office Relocation from Island to Kowloon is Taking a Breather

Hong Kong Grade A office market continues its recovery trend, although the external economic environment is still clouded by the debt crisis in the European region. According to Colliers International, the indicators of the Grade A office market, including rental and vacancy, gathered momentum in the last 3 months.

“The market has been seeing strengthening occupational demand, particularly buoyed by sustained activities in the financial sector. Besides, more companies in Mainland China set up their offices in Hong Kong, serving as a new demand in the market,” said Simon Lo, director of research & advisory at Colliers International Hong Kong.

“Thanks to the sustained demand, Grade A office vacancy edged down in all sub-markets in the first half of 2010. The overall Grade A office vacancy was 4.99%, which was comparable to that in the second half of 2008,” said Simon. “In 2010, the Grade A office vacancy rate in Kowloon East dropped most significantly to 9.2% in May 2010, returning to the level in January 2008.”

“The vacancy rate of the Grade A office sub-markets on Hong Kong Island also dropped in the first half of 2010. As at the end of May 2010, the Grade A office vacancy rate was 4.03% in Central/Admiralty, 4.36% in Wanchai/Causeway Bay and 3.26% in Island East,” said Wendy Lau, director of commercial department.

Moreover, the rental growth in 2010 also proved that the recovery in the Grade A office market is on track. After seeing the double-digit quarter-on-quarter (QoQ) fall in rentals from 4Q 2008 to 2Q 2009, the Grade A office rentals rebounded the first time by 3% QoQ in 4Q 2009.

“With the sustained demand and economic improvement in the local market, the overall rental growth became more solid in 2010. The market registered 5% QoQ growth in 1Q and 8% QoQ growth in 2Q. Amongst the sub-markets, the Grade A office rental growth of 12% in Central/Admiralty, 9% in both Wanchai/Causeway Bay and Kwun Tong/Kowloon East, were outperforming in the office sector in May 2010,” stated Simon.

During the down cycle between 2008 and 2009, quite a number of companies relocated from Wanchai/Causeway Bay to Kowloon East due to the tempting rental difference. “The Grade A office rentals in Wanchai/Causeway Bay was HK$30 per sq ft per month (net floor area) higher than that in Kowloon East. Thus, office relocation to Kowloon was widely considered by many companies so as to reduce their operating cost during the financial crisis,” said Wendy.

“However, such a move is taking a breather in 2010. The rental difference between Wanchai/Causeway Bay is narrowing to about HK$20 per sq ft per month. The rental saving becomes less attractive. There have been fewer major relocations from Hong Kong Island to Kowloon in 2010,” added Wendy.

In anticipation of the continued growth in occupational demand and sustained economic recovery, the local office market is expected to experience the full upswing momentum. The overall Grade A office rental is projected to reckon 20% in the next twelve months. Underpinned by the comeback of financial companies, the Central/Admiralty sub-market is anticipated to see exceptional growth during the period.

Colliers International negotiated a long-term lease renewal on behalf of EMCOR Group, Inc., for 30,603 square feet of office space in the Koll Cotton Center at 4050 East Cotton Center, Suite 40, in Phoenix, Ariz.

Todd Noel, CCIM, and Keith Lambeth of Colliers International’s Phoenix office represented EMCOR Group, Inc. The landlord, ING Real Estate, was represented by Mike Goldwater of Commercial Properties, Inc.

According to Todd Noel with Colliers, “EMCOR’s customer solutions center has been located in the Koll Cotton Center for approximately 10 years. After conducting an intensive market search with Colliers, EMCOR decided to renew at their existing location. Our client benefited from the current market conditions, resulting in reduced overall occupancy costs for EMCOR.” A Fortune 500 company with estimated 2009 revenues of $5.5 to $5.6 billion, EMCOR Group, Inc. (NYSE: EME) is a global leader in mechanical and electrical construction, energy infrastructure, and facilities services. www.emcorgroup.com

The Koll Cotton Center is located northwest corner of 40th Street and East Cotton Center Boulevard, with easy access to the SR-143 and I-10 freeways, and is in close proximity to downtown Phoenix and Sky Harbor International Airport. The project was built in 2000 and acquired by ING in 2005.

source : Colliers