Lexington Partners, a New York-based manager of secondary private equity funds, decided to down-size its Hong Kong office space by about 45 per cent, a week after its decision to renew the lease at its office in IFC Two.
The company will now lease 5,000 square feet (464.5 square metres), instead of the original 9,000 sq ft, according to Land Registry records. Units 2903, 2904 and 2905 were subject to a “partial surrender”, the registry document shows.
The company did not immediately respond to a request for comment from the Post.
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The withdrawal of the lease is likely to further worsen vacant office space in the city, which hit 9.3 per cent or 5.7 million sq ft in the second quarter, higher than the 8.9 per cent recorded in the first three months of the year, according to Savills.
Although premium office space rents fell 2.6 per cent in the April to June period, slower than the 3.5 per cent decline in the previous quarter, Lexington’s reduction of space suggests that the worst may not be over for Hong Kong’s battered office segment.
“Foreign-based firms would be more likely to surrender office space or move out from Central to cut rental cost in the near future,” said Thomas Chan, Midland IC&I research analyst.
“Mainland Chinese firms, however, would become the major source of demand in Central, at least before the end of pandemic and reopening of the border. Chinese demand would also [help the office space segment in Hong Kong through] the return of Chinese concept stocks to HKEX (Hong Kong exchange).”
Last year, the city’s main business district of Central saw a number of multinationals leaving for other business districts to cut costs amid the coronavirus pandemic.
For instance, in May last year about 1.1 million square feet of space in Central was estimated to have been left vacant, according to CBRE. Companies ranging from online travel specialist Expedia to Macquarie Bank, and even the creator of the League of Legends mobile game, have trimmed their office demand.
Hong Kong is the world’s most expensive city for office rentals, with Central district fetching an annual rent of US$307 per square foot, 30 per cent more than the US$235 per square foot in London’s West End and almost 53 per cent higher than the US$201 per square foot in Beijing’s Financial Street, according to a report by CBRE.
With a monthly average of HK$114 per sq ft in the second quarter, Central rents were still at a 91 per cent premium to the general market, although they have fallen from the 96 per cent premium recorded a year ago, according to Savills.
Despite the narrowing gap, Savills said decentralisation is likely to continue. Swiss bank Julius Baer, currently operating from One IFC, has committed to lease four floors in Two Taikoo Place in Hong Kong’s Eastern district.
Meanwhile, mainland Chinese companies continue to prefer trophy buildings, with China International Capital Corporation snapping up space at One IFC, becoming one of the major tenants in the premium building. Mainland Chinese companies occupied 23.5 per cent of grade A office buildings in Central, up from 20.5 per cent in July 2017, said Savills.
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