Hong Kong Real Estate Remains Strong

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Hong Kong Real Estate Remains Strong


Even by the standards of Hong Kong’s skyscraper-studded skyline, the new International Commerce Center is big. Very big. And, despite the global economic slump, it is already nearly fully rented — a testament to the strength of one of the world’s hottest property markets.

At 490 meters, or 1,608 feet, the gleaming, nearly complete tower, which has been mushrooming its way into the record books over the past five years, is now the tallest building in Hong Kong, with views of the Chinese mainland and the islands off its coast.

The 118 stories of the International Commerce Center, or I.C.C., also give it the rank of the world’s fourth-tallest building, behind the almost completed Burj Dubai in Dubai, Taipei 101 in the Taiwanese capital and the Shanghai World Financial Center. Its roof will be about 70 meters higher than that of the Freedom Tower being built at the World Trade Center in New York, and about 180 meters above that of the so-called Shard in London, which will be the tallest building in Britain, once it is completed in 2012.

The I.C.C., which is due to be completed next year, further cements what has become a tradition in Asia: creating the world’s tallest buildings as a symbol of the region’s growing economic might.

In Hong Kong, with its constrained topography and position as one of Asia’s leading financial hubs, property prices and rents are as sky-high as many of the buildings.

Nevertheless, Sun Hung Kai Properties, the developer behind the I.C.C., says the megatower is almost completely leased. The developer locked in three high-profile anchor tenants, including Morgan Stanley and Credit Suisse, in 2007 and 2008 — long before the I.C.C. was anywhere near completion and while rents were still surging. The financial crisis meant that banks needed to find ways to save, and moving across Victoria Harbor from the central business district was attractive.

“There are only certain times in the economic cycle when you can fill buildings like these — tall buildings, where you need multistory tenants,” said Paul Katz, president of Kohn Pedersen Fox Associated, the design architecture firm for the I.C.C. Sun Hung Kai’s “timing was brilliant,” he said.

About 124,000 tons of steel were used in the tower’s construction — a weight equivalent to about 720 blue whales or nearly 450 Airbus 380s. And the amount of concrete used could fill 103 Olympic-size swimming pools. Fourteen soccer fields’ worth of glass cover its shimmering exterior, and the air conditioning ducts stretch a total of 19 kilometers, or nearly 12 miles.

Inside, 83 elevators will ferry the tens of thousands of people who will eventually work in the building. The lengths of the elevator shafts alone add up to more than 14 kilometers — the longest, a service lift, has a run of 470 meters.

Flanking the tower as it looks across Victoria Harbor: an array of buildings housing luxury residential apartments, an upmarket hotel and a huge marble shopping mall complete with an ice rink.

Office rents in the district known as Central — home of the main business district, which hugs Hong Kong Island’s northern flank — are among the highest in the world, comparable only with those in Tokyo and well ahead of even London and New York, according to statistics compiled by the commercial real estate services firm Cushman & Wakefield.

Since peaking about a year ago — before the worst of the global financial turmoil hit home — average office rentals in the city have fallen about 50 percent, said John Siu, head of Cushman & Wakefield’s office for Hong Kong and southern China. “But compared to other cities in Asia, it is still expensive,” he said.

Despite the crisis, which threw Hong Kong into recession for much of the past year, vacancy rates in Central are among the lowest in the region — 6.7 percent, with rents for A-grade offices averaging $11.31 per square foot per month, according to Cushman & Wakefield’s latest statistics, for June and July.

In Tokyo, where only 3.4 percent of such office space is unoccupied, rents average $9.80, and in Singapore, the third main financial city in Asia, they stand at $5.98, with a vacancy rate of 5.1 percent.

Similarly, while house prices are continuing to languish elsewhere, the Hong Kong property market has almost fully rebounded this year as investors, including many from mainland China, take advantage of low interest rates to snap up apartments in the crowded city. Prices in the segment are now near where they were a year ago, according to an index compiled by the Centaline Property Agency. By contrast, in the United States, home prices in major cities are still 30 percent off their peak.

What makes Hong Kong so extraordinarily expensive — and has helped Sun Hung Kai, the developer, to fill all but a dozen floors of the International Commerce Center tower — is that there is very little other new office space coming onto the market.

In part, this is because there is simply nowhere to put new buildings. Central, sandwiched between Hong Kong’s harbor and the steep hills in the island’s center, has for years had virtually nowhere to grow but up, sprouting ever taller buildings.

The southernmost tip of Kowloon, on the mainland part of Hong Kong — one cross-harbor subway stop from Central, and a 20-minute hop from the airport — has become the main spillover area for top-grade offices. It is here that the I.C.C. is situated.

Morgan Stanley committed to the I.C.C. in August 2007 and completed the move from its former premises in Central last December, even while construction on the I.C.C.’s topmost floors continued.

Credit Suisse signed up for 10 stories in December 2007 and expects to have fully moved into the building by 2011. And Deutsche Bank signed up for 12 floors in May last year.

A 16-floor, 300-room Ritz-Carlton hotel will inhabit the very top.

The prospect for finding tenants for the remaining floors is good, said K.W. Lo of Sun Hung Kai, who is responsible for leasing the I.C.C.

Despite an improving economy in recent months, the office rental market — in contrast to the buoyant property market — has stayed subdued. Rents have continued to fall modestly and by some forecasts are likely to continue to do so this year.

“When we started talking to these three anchor tenants, the market was starting to pick up in a big way,” Mr. Lo said. “After they signed up, it reached the top. Today, the market has changed, and we are talking about more favorable terms for potential tenants.”

He said that Sun Hung Kai was talking to several big potential tenants and hoped to conclude a deal in the next few months. He declined to name the companies involved.

Aside from the glamour of the I.C.C. complex, its tenants are getting the most sophisticated amenities Hong Kong has to offer — including things like backup systems for power and air conditioning. This is an important consideration for financial institutions, which depend heavily on information technology.

At the end of the day, though, financial considerations will have played a major role in luring tenants to the I.C.C.

None of the parties involved divulge details of how much they are paying.

But real estate agents say rents on the I.C.C. side of the harbor have been — and remain — much lower than in Central.

Average rents in the 88-floor, 420 meter-tall International Finance Center, for example, are estimated at about twice those in the I.C.C.

“A lot of these banks are still under pressure to cut costs, so it makes sense for them to move,” Mr. Lo said.


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