New | Hong Kong government needs to take steps in developing commercial office space
The government has been slow to address the city’s desperate need for commercial development sites
The political instability arising from the ‘Occupy Central’ protest that took place in the fourth quarter last year has prompted many multinational companies (MNCs) to rethink their operational strategy in Hong Kong despite the fact that business operations were largely unaffected.
These risks, combined with high occupancy costs and a shortage of space, remain major challenges for MNCs looking for commercial space in the city, and underline the fact that the Hong Kong Government needs to be more strategic in maintaining the city’s position as a prime location for regional office headquarters.
The acute shortage of land for development in Hong Kong is the key reason underpinning the high property prices and rents across all sectors. However, the government has been slow to address the city’s desperate need for commercial development sites.
In recent years, some progress has been made towards increasing residential land supply, but little has been done to rebalance demand and supply in the commercial property sector. The latest Policy Address, for instance, did not offer any new initiatives to tackle the situation.
Over the past 10 years, a total of 166 sites providing 69 million sq. ft. of gross developable area have been sold, either through auction or tender. Of these, only 35 sites providing 19.5 million sq. ft. of gross developable area were for non-residential usage and just 6 million sq. ft. of this is estimated to be for office purposes.
An average of around 2 million sq. ft. in net floor area new Grade A office supply has been made available in the past 20 years, which has barely managed to satisfy average annual net absorption of around 1.7 million sq. ft. This meant vacancy rates have been kept consistently low, which in turn has resulted in a lack of suitable office options and mounting rents. The situation could get worse in coming years, with an average of just 1.9 million sq. ft. of new office space to be completed each year up to 2019.