As businesses continue to decentralise from Hong Kong’s CBD, REIT managers are re-branding and refurbishing their assets in the outskirts with a focus on environment and wellness to attract demand.
Office decentralisation has gained momentum in Hong Kong as professional services companies, including banks and law firms, no longer see areas such as Hong Kong East as back-office locations. With improved transportation infrastructure, accessibility, lower rent, and advanced technology, the tenant profiles in the decentralised zones are increasingly aligned with those in Central Hong Kong. Meanwhile, co-working operators are adding to demand growth.
“We have adopted a proactive leasing strategy and devoted considerable effort in executing asset enhancement initiatives, revitalising and upgrading the buildings to facilitate and maintain their attractiveness to tenants,” says Henderson Sunlight Asset Management’s General Manager of Investment and Investor Relations, Vivian Yip. “As we capitalise on this trend of decentralisation, we are dedicating substantial resources to revamp our second-largest office property, Bonham Trade Centre, will be renamed as Strand 50 soon, in west Hong Kong, to become an attractive destination satisfying the needs of both co-working and institutional tenants. The building will be renamed Strand 50 soon.”
Sunlight REIT, listed on the Hong Kong Stock Exchange since 2006, is 40% owned by Henderson Land Development Company Limited and Lee Shau Kee’s family.
The recent opening of the Central-Wan Chai bypass has improved the transportation connectivity of Island East. Supermarket chains ALDI and WM Morrison were among the first companies that have relocated their offices to Kowloon East, taking advantage of the higher availability of space in the submarket.
“Since last year, we have seen the relocation of many multinational corporations and large-scale professional firms to areas such as Wan Chai, Causeway Bay, and Island East,” says Sunlight’s Yip.
Kai Tak Airport Region Takes Off
Hong Kong’s decentralisation efforts aren’t focused solely on Hong Kong island. The government is re-developing its now defunct Kai Tak Airport located in Kowloon East. At least 42 applications have been approved and executed for wholesale conversion or redevelopment in Kwun Tong and Kowloon Bay under the revitalisation policy for industrial buildings, according to the government. These industrial buildings will be redeveloped or converted into offices, shops and services, and hotels. About 2.6 million square metres of office floor space has been completed.
An important industrial base in the heyday of Hong Kong’s manufacturing industries in the 70s and 80s, the relocation of the airport to Chek Lap Kok in 1998 and Hong Kong’s manufacturing base to the Mainland led to a vast stock of industrial buildings not being fully utilised.
Central Is Still Thriving
Despite the move, Central, the thriving heart of Hong Kong’s CBD, maintains its popularity among client-facing offices and Chinese corporations. While rental growth has slowed due to weaker demand from mainland Chinese industries, vacancy rate has remained low as supply is also limited.
“For investment property portfolios to remain competitive, it is important to ensure that investment property portfolios are diversified across both core business district and decentralised locations, and they should also show potential for stable organic growth on rental income,” says Patrick Ma, Director of Listed Products and Research at Admiral Investment Limited.
With Hong Kong’s geographical advantage as a gateway to mainland China and its talented workforce, office demand and rent will continue to rise, and so decentralisation will broaden further, says Ma.