Variables in the Model Denote as Proxy by Dependent Variables

General Office Rent RENTTOTAL Private Office Rental Index of All Grades

Grade A Office Rent RENTA Grade A Office Rental Index Grade B Office Rent RENTB Grade B Office Rental Index Grade C Office Rent RENTC Grade C Office Rental Index

Independent Variable

Globalization Determinants Inward Foreign Direct Investment

FDI Inward Foreign Direct Investment Flow Number of Oversea

Companies in HK

OVERCO M

No. of oversea companies registered having a place of business in Hong Kong

Total Export EXPORT Total Export Volume Index (2000=100) Macroeconomic Determinants

Gross Domestic Product net Trade Factor

GDPNET TRADE

Real Gross Domestic Product net trade factor Volume Index (2000=100)

Income Level INCOME Real Income Index (1999=100)

Unemployment UNEM Unemployment Rate

Stock Market Performance HSI Real Hang Seng Index (1964 = 100)

5.3 Investigations of Variable for Regression

In this section, all variables in the proposed office rental model will be investigated. For the dependent variables, including the general office rental index as well as the office rental index of Grade A, Grade B and Grade C office, their reason for being chosen and their general trend in Hong Kong will be discussed together and an insight of Hong Kong office rental market will also be provided. Whereas for the independent invariables, which include both the globalization and macroeconomic factors, will be evaluated and explained in the later part as well. The rationale behind choosing all these factors as the independent variables taking Hong Kong local economy situation into consideration with justification of past literatures support will be clarified. The trend of these chosen independent variables and its relationship with Hong Kong

general economy conditions and local office rental market will be reviewed as well.

5.3.1 Dependent Variable

5.3.1.1 General Private Office Rents (RENT

)

Hong Kong general private office rents (RENTTOTAL), which is indicate by the private office rental index of all grades, is regressed on seven independent variables in this research so as to determine the major globalization and macroeconomic determinants of the general office rental market.

As stated in the previous chapter, the rationale behind the investigation of the office rental market in Hong Kong is based on several reasons. Hong Kong, being one of the freest financial and commercial centers with limited restriction policies, is one of the major territories being affected by globalization and global economic factors. Furthermore, office rental market is one of the property sectors that are not only being influenced by its local economic environment and the office buildings’ physical conditions and locations, but also it is also heavily being affected by global factors and the macroeconomic determinants. As a result, office rental market is chosen for investigation on this topic.

In Hong Kong, private office rental index from the Rating and Valuation Department, Hong Kong Special Administrative Region, is used to measure the office rental changes per square meter with reference to base year of 1999. Data starting from 1981 and 1982 of the office rental index of all grades and specific grade as well as average rents by grade and by district are available from Rating and Valuation Department respectively. Office rental index is chosen for investigation instead of average rents since index allows us to measure the changes relative to the value in a base year, as a result, it allows direct comparison between data with the same base year. Details of the definition,

source of data and time of selection for investigation will be illustrated in the last section of this chapter.

As stated in chapter 3, Hong Kong property market had experienced a drastic boom in the 80s’ to mid 90s’. Similar to the Hong Kong property market, Hong Kong general office rental market also experienced an increasing trend in the early 90s’ (1991-1995) after a slight drop in 1990, which may due to the threat of Tianmen Square event in 1989. However, the threat of the return of Hong Kong to China in 1997, which hindered both local and foreign investors to invest or expand their businesses in Hong Kong, led to a fall starting from 1995. Despite the slight increase in 1997-1998, Hong Kong general office rental market started to experience a tremendous fall from 1998 onwards, which may be affected by 1997 and 1998 Asian Financial Crisis. In 2003, the office rental market did not recover, but instead continued to experience a dramatic fall again due to the plague, SARS, occurred in Hong Kong that further hindered investors to invest and expanded their businesses in Hong Kong. After the serious continuous fall starting from 1998 onwards, Hong Kong general office rental market started to recover in 2005 and 2006.

Figure 5.1 Hong Kong General Private Office Rental Index (1990 Q1 to 2006 Q4)

Source: Monthly Market Statistic, Rating and Valuation Department, Hong Kong Special Administrative Region³¹

5.3.1.2 Private Office Rents of Grade A Office (RENT

)

Hong Kong Grade A private office rents (RENTA), which is indicate by the office rental index of Grade A office, will also be regressed on seven independent variables in this research with another equation model, so as to determine the major globalization and macroeconomic determinants of the Grade A office rental market.

Grade A office rental market has been chosen for further investigation apart from Hong Kong general private office rental market, since globalization and macroeconomic factors may have greater influence to a particular grades of offices despite they share the similar trend. Therefore, by further investigating on

31 Property Market Statistics, Rating and Valuation Department (2007 Website). Website of Rating and Valuation Department. (Online) Available from: http://www.rvd.gov.hk/en/publications/pro-review.htm (Accessed 1 March 2007)