DTZ China Insight

Investment Rating - The report indicates a positive outlook for the Hong Kong Grade A office market, particularly highlighting the rise of Kowloon East as a second core business district [1]. Core Insights - The total stock of Grade A office space in Hong Kong has increased by 31.3% over the past 15 years, from 60.3 million square feet to 79.2 million square feet, with the number of buildings rising from 139 to 183 [1][2]. - Kowloon East has become increasingly attractive to tenants and investors, accounting for approximately 58.7% of the investment amount in Hong Kong's five office districts in 2014 [1][2]. - The ownership structure of Grade A offices is predominantly local, with 71.6% owned by local participants as of 2014 [3][4]. Summary by Sections Ownership Analysis - The report analyzes 183 Grade A office properties, focusing on the types and nationalities of owners [2]. - Local owners dominate the market, with 71.4% of owners being from Hong Kong, while overseas ownership has significantly decreased [42][43]. Current Market Status - As of 2014, the overall vacancy rate for Grade A offices in Hong Kong is 5.5%, with 59% of the properties owned by listed developers [8][33]. - Kowloon East has the highest percentage of dispersed ownership at approximately 32.4% [3][4]. Transaction Volume - The investment market has been influenced by global and local economic factors, with significant fluctuations during crises such as SARS and the global financial crisis [9][10]. - From 2003 to 2014, corporate buyers accounted for 63.4% of total investment, driven by rising rental costs [14][15]. Stock Growth - The supply of Grade A offices has been limited due to land constraints, with only 18.96 million square feet added from 2000 to 2014, reflecting a compound annual growth rate of 1.84% [18][19]. - Kowloon East's share of the total Grade A office stock increased from 5.7% in 2000 to 17.0% in 2014 [19][20]. Age and Concentration - The average age of Grade A offices in core areas like Central is 23.8 years, with limited redevelopment due to high costs [26][27]. - Kowloon East has the lowest average age of office properties, indicating its recent development [27][28]. Listed Developers' Holdings - The top 10 listed developers own 49.1% of the total Grade A office space, with Swire Properties holding the largest share at 11.5% [33][34]. - The average age of properties held by major developers varies, with some properties dating back to the 1960s [34][35]. Ownership Changes - The report notes a shift in ownership dynamics, with local developers retaining properties while overseas investors are selling off holdings due to lower returns [42][43]. - The rise of corporate ownership in Grade A offices reflects a trend towards self-use to mitigate rental costs [51][52]. Kowloon East's Rise - Kowloon East is projected to surpass Central as Hong Kong's largest business district in the coming years, driven by significant investment and development [59][60]. - The area's infrastructure improvements and integration of various districts are expected to enhance its appeal further [60].