Kowloon may attract more Chinese firms as office-rental cost gap narrows between Greater Bay Area cities and Hong Kong

·4-min read

Falling office rents in Kowloon have reduced the price premium between the area of Hong Kong and mainland cities in the Greater Bay Area, attracting more Chinese firms to set up shop in Kowloon, according to property consultants Colliers and Knight Frank.

The most recent and worst wave of the Covid-19 pandemic in Hong Kong dragged down office rental prices, and the average office rent in Kowloon fell 9.3 per cent to HK$26.90 (US$3.43) per square foot in May.

Rental prices in the Greater Bay Area on average are 20 to 25 yuan [HK$23.52 to HK$29.38] per square foot per month, while in Kowloon they are between HK$25 and HK$30 per square foot, according to Patrick Mak, executive director of Knight Frank.

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Kowloon is experiencing a supply surplus cycle right now, said Mak, who added that only outlying parts of Kowloon are seeing office rents close to what they are in Guangzhou and Shenzhen, while the central part is still far more expensive.

Rents for office space in Shenzhen are close to those in some parts of Hong Kong’s Kowloon district because of oversupply and the fifth wave of the Covid-19 pandemic. Photo: Xinhua
Rents for office space in Shenzhen are close to those in some parts of Hong Kong’s Kowloon district because of oversupply and the fifth wave of the Covid-19 pandemic. Photo: Xinhua

“The Kowloon grade-A office market demonstrated much stronger momentum since the easing of the fifth wave of the epidemic,” Mak said. “New set-ups of Chinese mainland enterprises, relocations from Hong Kong Island, and office upgrades are the major sources of new demand in Kowloon that fuelled the momentum. We have also witnessed growing demand for medical real estate in Hong Kong.”

Chinese companies with the mission of connecting with the world prefer to locate themselves in Hong Kong rather than in the Greater Bay Area.

For example, China telecom giant Huawei Technologies has offices in central Kowloon, specifically in The Gateway in Tsim Sha Tsui.

In 2020, Ping An Life bought a 30 per cent stake in the office portion of a commercial project on top of the West Kowloon high-speed rail station for HK$11.27 billion from Sun Hung Kai Properties and its controlling shareholder, the Kwok family. Nan Yang Commercial Bank acquired three floors in the commercial building at 888 Lai Chi Kok Road in Cheung Sha Wan, West Kowloon, in October 2021. PC Partner also took space in the same building.

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Colliers anticipates that Kowloon West will account for 29 per cent of the 14.6 million sq ft of new office supply the company expects to see in 2026. The area accounts for 7 per cent of the total office stock right now.

“Kowloon West and New Territories West account for 36 per cent of the next five years’ new supply,” said Rosanna Tang, head of research from Colliers. “This will make Kowloon West the fastest-growing submarket in Hong Kong.”

West Kowloon has only six grade-A offices currently, compared with 19 in Central and 15 in east Kowloon.

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The number of Chinese enterprises in Kowloon is around 20 per cent less than the number on Hong Kong Island at the moment, but the gap has closed significantly from between 30 per cent and 35 per cent five years ago, Mak said.

“Kowloon West has its own advantages to attract Chinese mainland companies, with its proximity to the border and the airport,” he said. “Particularly now the government is also pushing the linking to the Greater Bay Area via the airport area, linking up Macau and Zhuhai, surely demand will also start to pay attention to this area.”

Marcos Chan, executive director from CBRE, however, said Kowloon West would not be a popular spot, while the eastern and central parts of Kowloon and Hong Kong Island will remain dominant.

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He said that Chinese firms still prefer the core Central business district or East Kowloon, which will transform into the city’s second core business district in the long run.

Hong Kong Island office rents have recorded declines three years in a row, according to Knight Frank. The average prime office rent in Central currently stands nearly 32 per cent lower than the peak in 2019, according to CBRE. Knight Frank predicts rents will rebound 5 to 10 per cent by the end of the year.

“I would say the downward pressure [on Central] is not large if Kowloon’s office demand surges,” Chan said. “Central has been very mature and companies with more international demand will not relocate.”

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