Consolidations, Relocations Driving Hong Kong Office Demand in 2017

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Hong Kong's Central Grade-A Office Rents Up 1.3% in January
 
According to JLL's latest Hong Kong Monthly Market Monitor, despite office leasing activity slowing around the lunar New Year holidays, the Grade-A office market still recorded a number of notable transactions in January 2017. Activity was mainly underpinned by consolidation and relocation requirements, with net take-up amounting to 54,300 sq. ft for the month. In one of the more notable transactions, Alibaba leased about 92,000 sq. ft at Times Square in Causeway Bay to house its media arm, the South China Morning Post.
 
The opening of the new South Island MTR line stoked tenant interest in Wong Chuk Hang. Valentino leased 1.5 floors at 41 Heung Yip Road whilst Mayer Brown JSM is moving its back office to a whole floor at the same building from Central.
 
In Central, the occupier market returned to growth with net take-up amounting to 45,100 sq ft as PRC financial services firms expanded and set up new offices. China Huarong, for example, expanded into a 9,000-sq-ft office at Three Garden Road whilst Guangzhou-based asset manager SFUND leased a whole floor with lettable area of 9,400 sq ft at Bank of China Tower for its newly established operations in the city.
 
Rents in Central increased by 1.3% m-o-m to HKD 113.8 per sq ft in January on the back of limited availability and sustained PRC demand. Rents in other major office submarkets, with the exception of Kowloon East, also trended higher against a tight vacancy environment.
 
Alex Barnes, Head of Hong Kong Markets at JLL, expected a portion of the legal sector to continue to decamp from Central. "Because of a widening rental gap between Central and alternative front office locations, the relocation trend is gathering pace. With supply increasing outside of Central, we believe that more professional service firms will seek to reduce rental costs by relocating out of Central. Freshfields Bruckhaus Deringer, for example, has reportedly leased two floors at One Island East. This will herald the first UK 'Magic Circle' law firm to move out of Central. The opening of the South Island MTR line continues to pique tenant interest in Wong Chuk Hang, although this is less likely to attract large scale front office functions from Central."
 
Denis Ma, Head of Research at JLL also commented,  "Like the banking and accounting sectors before it, the legal profession now appears on the verge of being the next industry willing to cut ties with Central. The sector, which currently accounts for about 10% of the Central Grade A office market, or about 2.5 million square feet, represents as a significant source of rental refugees who are able to absorb above market rents in locations outside of Central."