Standard Chartered will not renew the leases for eight floors at its Hong Kong headquarters in Central, according to local media reports, as it adopts work from home arrangements and cuts costs amid the Covid-19 pandemic.
The bank, one of the city’s three note-issuing lenders, will also offer for lease three floors it owns at Millennium City in Kwun Tong, according to Hong Kong Economic Times. Standard Chartered declined requests for comment.
“It is a common tenancy renewal process. We are not in a position to discuss individual tenant’s arrangement,” Hang Lung Properties, which owns the Standard Chartered Bank Building, said in a written reply to the Post. The building always draws interest from financial and legal firms, which have a good presence in Central, it added.
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The news comes amid a rise in vacancies in the Central grade A office market, the world’s most expensive commercial market. Vacancies rose to 7.3 per cent in December last year, surpassing 7 per cent for the first time since 2004, according to commercial real estate services company JLL.
“The vacancy rate will continue to increase, as there is a sizeable amount of marketable and surrendered space anticipated to come back to the market in the coming months. Leasing activity was limited towards the end of the year, with only a handful of small transactions recorded,” it said, adding that it expected overall grade A office rents to drop as well, by as much as 10 per cent, this year.
The lease for four floors leased by Standard Chartered expires in October this year, while the contract for another four expires in April 2022. Combined, the eight floors equal 60,000 sq ft. The three floors it plans to lease out in Kwun Tong will also yield 60,000 sq ft.
The reduction of office space could help the bank save about HK$6 million (US$770,000) a month, at HK$100 per square foot, which is what Hang Lung is expected to ask for the space, according to market watchers. Meanwhile, leasing the three floors in Kwun Tong will help it generate HK$1.5 million a month, or HK$25 per square foot, they said.
“Lots of companies are looking for ways to reduce cost. It is a trend for multinational corporations to reassess their office strategies in major gateway cities around the world, where real estate costs are particularly high,” said Alan Lok, executive director of advisory and transaction services for office at CBRE Hong Kong.
For instance, HSBC, Hong Kong’s largest lender, was considering ways of digitising more of its operations, so that more of its employees could work from home in the future following its experience during the pandemic, Ewen Stevenson, the bank’s chief financial officer, said last November.
Standard Chartered will continue to be Standard Chartered Bank Building’s anchor tenant, Hang Lung said. The bank currently occupies more than 15 floors in the 42-storey building.
The bank sold its entire property portfolio, including its headquarters in Central, in late 1992 and early 1993 and rented it back, saying that this was a better use of its resources. In November 1997, the bank reversed its policy and bought 300,000 sq ft of office space at Millennium City for HK$1.3 billion from Sun Hung Kai Properties.
Its decision to cut office space comes two months after the bank announced plans to allow employees in nine markets, including Hong Kong, to apply for a formal flexi-working arrangement from this year. This can include time split between Standard Chartered offices, their homes or other premises, such as co-working facilities.
“The real estate plans of the bank do not typify the plans for the majority. The market may currently lean towards some moderate reduction in overall size. But equally, there are a number of MNCs, including banks, in the market seeking expansion and upgrading,” said Alex Barnes, head of office leasing advisory at JLL in Hong Kong.
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