HK Office market overview

 1) General view on Hong Kong's office market in past few years
(香港写字楼市场近年来的发展概况)
            
In view of Hong Kong’s office market in the past ten years starting from 1997, it could be divided into 2 distinct halves (2H97-1H03 & 1H03-present) in terms of economic momentum and property market development with the event of SARS marked as a turning point. The first half was being affected by several negative macro economic and global events such as Asia Financial Crises, 911 and SARS, whilst the second half saw the market being heated up again on the back of global and regional economic recovery as well as the positive effect brought by the implementation of new policies.
In the nearest trough of Hong Kong Grade A office market in 3Q03, overall demand remained weak due to the constrain brought by the slowing global economy which lead to weaker earning prospects among multinational corporate. The IT revolution at the turn of the millennium lifted demand for office space in the city but this quickly dried up following the bursting of the dot.com bubble.. The outbreak of SARS further slowed the office market activities down, for many multinational corporations put real estate decisions on hold while they focus on contingency planning. In June 2003, the vacancy rate of Grade A office reached a peak of 14.9% in Central and 11.1% overall.
The Grade A office market then started to pick up its performance and kept rising since the 4Q03 with support of strengthening Mainland economy and recovering labour market, leading to the strong demand for relocation and expansion from the Finance, Insurance, Real Estate and Business Services (FIREBS) sectors. In fact, capital and rental value has been rebounded over 160% and 230% respectively between 3Q03 and 1Q07.

2) How to mark off Hong Kong CBDs and Grade A Offices' development in the areas
  (香港CBD的划分及区域内高档写字楼概况)

Hong Kong’s Grade A office Market can be divided into Core and Non-core areas. The Core areas include the sub-markets of Central, Tsimshatsui and Wan Chai\Causeway Bay whilst the Non-core areas include Hong Kong East, Hong Kong Non-core, Kowloon East, Kowloon Non-core and New Territories.
Central as the traditional financial hub is home to the worlds largest and most notable banking and financial institutions; Tsimshatsui with its proximity to the Mainland-linked transportation network is largely dominated by trade related industries; Wanchai/Causeway Bay is largely occupied by non-finance related service industries; Hong Kong East, with its high-specification buildings and lower rentals has a large mix of telecommunications and IT-related tenants; and Kowloon East is emerging as a viable option for tenants seeking high quality offices at lower costs and as location for housing back office operations.
It is noteworthy that not all Grade A buildings appeal equally to all tenants.  In recent years a distinct quality based sub-market has emerged. Buildings with higher specifications have generally attracted a larger share of FIREBS sector tenants who are able to pay higher rentals. The clustering of these buildings is most apparent in Central though over time we expect an increasing geographical spread. The recent economic boom which has been led in part by the FIREBS sector has seen demand in these buildings reaching peak levels and pushed rentals to record highs in these buildings.
However, despite the strong demand for quality office space, the lack of developable land in Central has seen developers shift their focus to the Non-core area markets in recent years and most notably towards Kowloon East. Of the 11.3 million sq ft net of Grade A office space due to reach the market over the next 5 years, 90% will be constructed in the Non-core area markets.

3) Market Forecast (对未来市场的预测)
With the Hong Kong economy now riding on the coattails of the mainland’s phenomenal growth, we expect demand for Grade A offices to remain strong in the near term. However, a wave of new supply (about 6.8 million square feet net of new supply scheduled to hit the market over the next 18 months) and a higher base of comparison is expected to slow rental growth to about 5-10% in 2007.