Hong Kong Office Leasing Guide

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Market

Report

asiapacificproperties.com

Hong Kong Office Leasing Guide

March 2015

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Terminology

_{Leasing Terminology And Costs –}

General Market Practices

BUILDING GRADES

1.

GRADE A

Highest quality building in prime locations with state-of-the-art specifications and highly sought after by the high-profile companies.

GRADE B

These buildings fall just below Grade A buildings and have slightly lesser specifications and quality. They are typically older and just outside prime office locations.

GRADE C

These are older office buildings with low specifications and less appealing to many companies. They are typically sought after for cost conscious firms who feel the need to not be centrally located in the heart of business districts.

LEASING TERMINOLOGY

2.

GROSS FLOOR AREA (G)

In most buildings, gross floor area is the common method of measurement. It is the area within the perimeter of the outside walls including wall thickness, service core including lift lobbies, passenger and service lift-wells, staircases, lavatories, pantries, mechanical, and electrical areas. LETTABLE AREA (L)

The net area plus a percentage of common usable area such as lift lobbies and toilets (apportioned if the floor area is sub-divided). Lettable to net efficiency is generally 80-90%. NET AREA (N)

Sometimes referred to as the usable area or carpeted area, the total net area of the premise is measured from the inside walls and excludes internal structures.

EFFICIENCY (NET/GROSS AREA RATIO) Most buildings in Hong Kong have an office efficiency of 70%-80%, depending on internal structures that decreases the usable area of an office space. Building units are typically given in gross area square footage

usable area or net area. OPTION TO RENEW

In addition to the initial lease term, some landlords, in exceptional cases, may grant to a coveted tenant user an option to renew for a further term at a rent either pre-agreed upon by both parties or at prevailing market rent at the time of renewal.

EARLY TERMINATION

Early Termination is usually not allowed on the fixed lease period. In some cases, early termination might be allowed based on mutual agreement or by finding a replacement tenant. REINSTATEMENT

In almost all cases, tenants are contractually required to reinstate the premises to its original condition and remove all alterations prior to handing back the premises to the landlord. LANDLORD’S PROVISION

These are the fixtures and/or fittings provided by the landlord free of charge. Sprinkler system for fire protection, basic air-conditioning apparatus and false ceilings are commonly provided. RENT FREE PERIOD

Tenant may be entitled to a rent-free period granted for fit-out works. The average rent-free period is two weeks to two months for two year leases, but may vary according to the size and lease term of the office space taken.

COSTS INCLUDED WITHIN A LEASE

3.

RENT

Rental rates are generally quoted per square foot and payable monthly in advance.

SECURITY DEPOSIT

Upon the execution of the Tenancy Agreement (TA), tenants are required to pay a security deposit of three months total sum of the following: rental plus management fee, government rates (estimate) and other chargers, if applicable.

MANAGEMENT FEE

HK$11 per square foot gross per month, depending on age and location of the building. Management fees pay for cleaning and maintenance for common areas and general building upkeep. They typically also include central air-conditioning costs during normal office hours and half-days on Saturdays, though not in all cases. LEGAL COSTS

Tenants are to bear their own legal costs and are advised to consult their solicitors to ascertain actual fees. STAMP DUTY

The tax payable to the government is calculated based on the rental price and the length of the lease term. Normally stamp duty tax is shared equally by landlord and tenant. For lease terms of 1-3 years, the stamp duty is 0.5% of the average annual rental, and for lease terms over 3 years, the rate is equal to 1%.

UTILITY COSTS & TELECOMMUNICATION Tenants are required to apply for a separate electricity and water account for the premise, if applicable. Deposits shall be paid directly by the tenant to the utility providers. Tenants are solely responsible for the installation and service charges of telecommunication usage in their own premises.

FIT-OUT COSTS

Estimated fit-out cost is approximately HKD200-HKD500 per square foot of net area for standard finishing, and up to HKD1,000 per square foot for top-end offices in Grade A buildings. Tenants are required to obtain approval from the landlord for the lay-out plan. Some landlords may have a provision for the vetting fee for amendments, approval for the lay-out and the monitoring of the progress. There is a deposit required to ensure no damage is made to the common areas of the building.

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Market

Overview

Rental Price And Vacancy

VACANCY RATES & DEMAND

The office leasing market remained stabled into Q4 of 2014, though we are seeing some contraction by firms that aggressively expanded in 2012-13 on the hopes of strong growth in China (which has been tempered). Consequently, with the uncertainty of future growth plans, corporations are seeking flexible solutions, such as serviced offices. This led to serviced office groups growing strongly and taking up large floor area throughout Hong Kong.

Despite the fact that the financial sector are more cost-conscious, the large take ups from serviced office groups and other unconventional office users such as medical and semi-retail sector on these prime location continued to maintain the stability of the overall vacancy rate throughout Hong Kong.

Vacancy rate of Central remained stable at 3.5%, where mid-sized companies driving majority of the leasing activities with internal expansion and consolidation. With the increasing demand from other non financial sectors, the vacancy rates of non CBD such as Tsim Sha Tsui down to 2.5% and Kowloon Bay down to 3%.

SUPPLY

A total of 1,885,200 sq.ft. of Grade-A office space was completed in 2013-2014, of that amount on 130,000 sq.ft. of office space is on Hong Kong Island, of which 80% had been absorbed within 2014.

Majority of future supply will be on Kowloon East, with the lack of future supply on Hong Kong Island, where the only significant future supply is on Island East - Taikoo Place redevelopment (available in 2017-2018), we foresee

further drift of companies on fringe Hong Kong Island relocating to new supplies on Kowloon East.

RENTAL RATES

Global economic uncertainties and additional signs of slowing growth in China are continuing and may foreshadow a downturn in demand and consequently a downturn in rental rates. The views are mixed on rental rate forecasts across Hong Kong. Recent reports suggest office rents in core-business districts will see a meaningful decrease and market correction through 2014, which may provide an opportunity for tenants to obtain Grade-A office space at rates that are attractive. Other industry professionals remain optimistic about Hong Kong’s resiliency and suggest there will be no significant rental rate decreases in core business districts. The answer may hinge not on external economic factors but on the outcome of several substantial lease negotiations currently underway: a failure of those negotiations to achieve renewals at present space requirements may cause the return of a substantial amount of empty space to the market, and landlords may be forced to lower rents to maintain their buildings’ occupancy levels.

Graphs source: Rating and Valuation Department, Hong Kong

Hong Kong Average Office Rental Rates (By District) 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00 100.00 110.00 Q 1 _Q3 _Q1 _Q3 1_Q _Q3 _Q1 _Q3 _Q1 _Q3 _Q1 _Q3 _Q1 3_Q _Q1 _Q3 _Q1 _Q3 _Q1 _Q3 _Q1 _Q3 1_Q _Q3 _Q1 _Q3 _Q1 _Q3 _Q1 _Q3 _Q1 3_Q _Q1 _Q3 _Q1 _Q3 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Year / Quarter A vg . R en t ( PS F/ M TH ) Central Sheung Wan Causeway Bay / Wan Chai Tsim Sha Tsui North Point / Quarry Bay

Hong Kong Office Vacancy Rates

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 Central &

Admiralty Sheung Wan Causeway Bay & Wan Chai North Point &Quarry Bay TST Kowloon East Districts Pe rc en ta ge Q1, 2014 Q2, 2014 Q3, 2014 Q4, 2014

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Business

Districts

Major Business Districts

Sheung Wan Causeway Bay Wanchai Admiralty Central Kowloon Kowloon Bay Kwun Tong

Tsim Sha Tsui

Quarry Bay North

Point

Image is not in scale

 Air Express Line

 Island Line

 Kwun Tong Line

 Tsuen Wan Line

 Tsueng Kwan O Line

 Tung Chung Line

0 Interchange MTR Station o MTR Station

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District

Overview

Sheung Wan

Sheung Wan, historically one of the original settlements by the British, is situated just north-west of the core business district of Hong Kong, Central, and only one stop away on the Island line MTR system. The district is regarded as more of a ‘local’ location for businesses with many shops, restaurants, and historical buildings from the British occupation. Sheung Wan is preferred by many as a cost effective location that is still in close proximity to the Central.

BUILDING ASKING RANGEAPPROX. (HKD/sq.ft)

FLOOR PLATE AREA

(sq.ft) YEAR BUILT

The Center 60-88 26,000 (G) 1998

Cosco Tower 53-68 22,000 (G) 1997

Nan Fung Tower 48-55 10,179 (G) 1973

Infinitus Plaza 48 11,899 (G) 1987

Golden Centre 45 5,385 (G) 1991

China Insurance Group Building 42 6,730 (G) 1967

Wing On Centre 42-54 18,740 (G) 1977

Beautiful Group Tower 40-45 3,904 (G) 2002

Shun Tak Centre 39-63 23,956 (G) 1985

FWD Financial Centre 39-42 8,016 (G) 1994

Bangkok Bank Building 39 3,565 (G) 1991

One8One Queen's Road Central 38-46 15,451 (G) 1998 Kai Tak Commercial Building 33 5,000 (G) 1974

The Pemberton 33 2,814 (G) 2006

EIB Centre 32 3,457 (G) 1999

China Merchants Building 26 4,620 (G) 1979 Major Tenant

DBS Bank, Goldman Sachs, Compass Serviced Offices, Samsung Electronics, Maples & Calder, Ogilvy & Mather Group Major Landlord

SHKP, Henderson, Sino Land, Strata-titled

To Central (by metro) Duration 3 min Costs HKD4.50 To Airport (by metro) Duration 36 min Costs HKD104.50

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District

Overview

Central

Central is considered as the Central Business District (CBD) in Hong Kong. Most of the newly completed Grade A buildings are concentrated in Central. It is also a preferred location for financial and banking institutions, hedge funds, legal firms supporting the financial sector, and multi-national corporations. Grade A office rents are traditionally the highest in Hong Kong, led by new developments on reclaimed areas such as the International Finance Centre.

FLOOR PLATE AREA

(sq.ft) YEAR BUILT Chater House 165 18,397 - 19,070 (N) 2002

York House 155 8,100 - 8,200 (N) 2006

One & Two International Finance

Centre 150-165 21,000 - 23,000 (L) 2003

Cheung Kong Center 150-155 20,157 - 22,454 (L) 1998 One, Two & Three Exchange Square 150 10,800 - 12,000 (N) 1988

The Landmark 140 12,100-13,200 (N) 1980 Jardine House 135 14,400 - 15,500 (N) 1972 CCB Tower 135 6,900 - 7,400 (G) 2012 Alexandra House 130 11,000 - 11,800 (N) 1976 Prince's Building 120 20,800 - 21,200 (N) 1965 Citibank Plaza 88 12,781-17,575 (L) 1992 Bank of China Tower 85-90 6,095 - 18,500 (L) 1990 Hong Kong Club Building 85 8,688 (L) 1984 8 Queen's Road Central 82-86 3,012 (L) 2000 Man Yee Building 80 7,326 - 11,482 (L) 2000 Major Tenant

Macquire Group, Jardine Matheson, Hutchison Whampoa, Bank of America, J.P. Morgan Chase, HSBC Holdings, Crédit Agricole (Suisse) SA, Agricultural Bank of China, Bank of China, Citibank Hong Kong, Hang Seng Bank, Standard Chartered Bank, UBS AG, SFC, Royal Bank of Scotland

Major Landlord

SHKP, Hongkong Land, Sino Land, Great Eagle, Strata-title To Airport (by metro)

Duration 33 min Costs HKD100.00

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District

Overview

Admiralty

Admiralty is another extension of Central, lying to the east of Central, one subway stop away. Because it is the location of the High Court, it is historically the preferred location for legal firms. Admiralty is also home to various 5-star hotels. It is a small district with only a few modern office buildings and a popular shopping mall.

FLOOR PLATE AREA

(sq.ft) YEAR BUILT One & Two Pacific Place 110-115 24,000 - 25,800 (G) 1988 - 1990 Far East Finance Centre 80-85 10,800 (G) 1982

CITIC Tower 65-68 14,700 (G) 1997

Lippo Centre Tower 1 & 2 46-62 12,500 - 14,890 (G) 1986 Admiralty Centre Tower 1 & 2 46-53 18,469 - 20,318 (G) 1980

United Centre 45-48 20,000 (G) 1981

Major Tenant

Deliotte, Baker & McKenzie, CCB International Holdings, The Carlyle Group, ENN Energy, Mircosoft Hong Kong

Major Landlord

Swire Properties, Citic, Strata-title To Central (by metro)

Duration 3 min Costs HKD4.50 To Airport (by metro)

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District

Overview

Wan Chai / Causeway Bay

Moving East from Admiralty, Wan Chai (WC) was historically a red light district but has undergone substantial gentrification in the last 20 years. Many major government departments and international consulates are located in Wan Chai, as well as Hong Kong’s primary convention center.

Meanwhile, Causeway Bay (CB) is a retail center and considered a paradise for shopping and entertainment. Offices located in these two districts are more affordable than in Central though at a slightly discounted level of prestige.

FLOOR PLATE AREA

(sq.ft) YEAR BUILT Three Pacific Place WC 95 18,471 (G) 2004

Hysan Place CB 80 17,500 (L) 2012

Harbour Centre WC 62 14,500 (G) 1983

Central Plaza WC 60-62 20,000 (G) 1992

28 Hennessy Road WC 60-65 4,900 (G) 2012

Sun Hung Kai Centre CB 58-68 16,600 (G) 1981

The Lee Gardens WC 58-68 16,544 (L) 1997

Hopewell Centre WC 55-60 13,500 (G) 1984

18 Hysan Avenue CB 54 5,044 (L) 1990

Times Square, Tower 1 & 2 CB 53-59 17,000 - 19,000 (G) 1993 World Trade Centre CB 53-56 12,770 (G) 1975

Caroline Centre CB 53 14,626 (L) 1992

Leighton Centre CB 49 11,496 (G) 1976

One Hysan Avenue CB 46-47 5,700 (L) 1993

Shui On Centre WC 43-55 11,280 (G) 1987

Sino Plaza WC 42-50 13,022 (G) 1992

Harcourt House WC 40-46 14,000 (G) 1985

Windsor House-ACE Tower CB 40-45 19,055 (G) 1979

AXA Centre WC 37-40 12,750 (G) 1982

Major Tenant

Disney, Société Générale, ICBC International Holdings, Noble Group, China Resources National, Sinopec (HK) Limited, Samsung Electronics, Daimler, Inchcape Far East Company Ltd, Nippon Telegraph & Telephone Corp., AT&T, Intel, KPMG, PepsiCo, Google Major Landlord

Hysan, SHKP, Swire Properties, Harriman, Sino Land, Strata-title To Central (by metro)

Duration 5 min / 7 min Costs HKD4.50 / HKD5.00 To Airport (by metro)

Duration 38 min / 41 min Costs HKD104.50 / HKD105.00

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District

Overview

Island East

“Island East” comprises North Point (NP) and Quarry Bay (QB), two areas that are attracting more tenants with lower rents than in their cousin districts to the west. In Quarry bay in particular, new office towers and substantial urban planning improvements are continuous with newly built/future planning for grade A office spaces within the Taikoo Place cluster, adjacent to the Quarry Bay MTR Station. Built by a major developer, major office buildings are linked by an elevated walkway.

North Point is considered as a residential district for working class. The district has a limited supply of Grade A & B office buildings but still attracts major tenants for their attractive prices and open views.

FLOOR PLATE AREA

(sq.ft) YEAR BUILT AIA Tower NP 46-50 14,425 (G) 1998 Cityplaza QB 45-48 19,000 - 26,300 (G) 1991 Taikoo Place QB 45-70 7,074 - 38,857 (G) 1993 - 2008 Berkshire House QB 45 13,734 (G) 1998 @Convoy NP 34-35 10,800 (G) 1991 625 King's Road NP 32 11,821 (G) 1998 Citicorp Centre NP 31-35 11,000 (G) 1983 Prosperity Millennia Plaza NP 28-35 8,867 (G) 1999 633 King's Road NP 28-32 11,821 (G) 2007

Olympia Plaza NP 28 7,882 (G) 1999

K Wah Centre NP 27-32 13,498 (G) 1991

148 Electric Road NP 27-30 8,205 (G) 2000 Two Chinachem Exchange

Square NP 20-21 9,432 (G) 1999

Major Tenant

For NP: HKU Space Campus, AIA Insurance, Duravit, Wyeth For QB: Lenovo, Fuji Xerox, City-Bank Call Center, DBS Call Center, PCCW, Swire Travel, Jessica Magazine, IBM, Heineken, Kingfisher Major Landlord

For NP: Swire Properties,

ChinaChem, Cheung Kong, Sino Land, Henderson

For QB: Swire Properties, Citic, Kerry To Central (by metro)

Duration 13 min / 15 min Costs HKD7.00 / HKD7.00 To Airport (by metro)

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District

Overview

Tsim Sha Tsui / Kowloon West

Tsim Sha Tsui, situated on the southernmost tip of Hong Kong’s “mainland,” has become a preferred choice for corporations, particularly sourcing and manufacturing firms, with clientele located in Kowloon, New Territories and/or Mainland China given its access rail line to Shenzhen, comprehensive MTR stations throughout Kowloon and wide variety of cost effective office buildings.

Kowloon West is home to the tallest building in Hong Kong, the International Commerce Center (ICC), with similar specifications to IFC. ICC was completed in 2010 and has become a secondary financial center with leading multinational finance firms as the majority of its tenants.

FLOOR PLATE AREA

(sq.ft) YEAR BUILT International Commerce Centre 78-80 31,182 - 38,864 (L) 2010 World Commerce Centre 50-60 18,212 (G) 1982 The Gateway 43-59 26,050 - 55,800 (G) 1994

Empire Centre 40-45 22,000 (G) 1981

Tsim Sha Tsui Centre 40-46 32,000 (G) 1980

Ocean Centre 38-50 17,500 (G) 1977

World Finance Centre 37-38 18,500 (G) 1982

Silvercord Tower 36-55 22,600 (G) 1983

Lippo Sun Plaza 36-39 25,860 (G) 1988

China Hong Kong City 33 21,100 (G) 1988

Major Tenant

Natixis, Morgan Stanley, ING, Deutsche Bank, Credit Suisse, Prudential, DHL, General Luxury Brands

Major Landlord

SHKP, Sino Land, Harriman To Central (by metro)

Duration 6 min / 12 min Costs HKD9.50 / HKD9.50 TST To Airport (by Metro)

Duration 44 min Costs HKD70.00 Kowloon Station To Airport (by Metro via Tsing Yi)

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District

Overview

Kowloon East

Kowloon East (historically an industrial area) is developing as an emerging business district with very attractive rental rates relative to the core CBD of Central. The government has laid out inclusive plans for a ‘CBD2’ complete with low cost housing, commercial and residential space, as well as more green space and light rail throughout the core.

Current redevelopment consists of shifting industrial space to office, and with Grade-A rents at 30-40% the cost of Central as well as additional buildings under construction or planned, it is an attractive option for back-offices and companies that need not be near the financial center.

FLOOR PLATE AREA (sq.ft) YEAR BUILT

One Kowloon 45 24,000 (G) 2006

Landmark East - Tower 1 & 2 36-41 14,300 - 28,000 (G) 2008 C-Bons International Centre 33-37 16,233 - 16,830 (G) 2010

Manhattan Place 33-34 21,180 (G) 2008

Manulife Financial Centre Tower A & B 31-34 65,376 (G) 2007 Enterprise Square 29-35 9,420 - 18,446 (G) 1992 - 2007 Millennium City 27-35 8,140 - 25,500 (G) 1998 -2007 Exchange Tower 26-31 26,686 - 27,983 (G) 2008 Skyline Tower 22-25 23,475 - 28,292 (G) 2003 Chevalier Commercial Centre 20-23 32,000 (G) 1992 Nan Fung Commercial Centre 17-18 30,914 (G) 1993 Major Tenant

For KB: AIA Insurance, Esprit, SCMP, Santa’s Best, Nike, Wai Yuen Tong, HSBC, DHL, HSB

For KT: Standard Charter, Best Choice, BEA, Manulife, Adidas, Reebok, Lenscrafters

Major Landlord

For KB: Kerry, Nan Fung & Sino Land For KT: SHKP, Harriman & Sino Land To Central (by metro)

Duration 29 min / 27 min Costs HKD13.50 / HKD13.50 To Airport (by Metro via Tsing Yi)

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Contact

Information

[email protected] www.asiapacificproperties.com HEADQUARTERS 14/F Wilson House 19-27 Wyndham Street Central, Hong Kong tel +852 2281 7800 fax +852 2810 6981 EAA License: C-002320 SHANGHAI OFFICE Suite 601 Plaza 66 Phase 2 1366 Nanjing Xi Road Shanghai 200040 P.R. China tel +8621 6288 7333 fax +8621 6288 7371

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Associate Director - Shanghai Commercial Division [email protected]

Geoffrey Guo

Manager - Shanghai Commercial Division [email protected] Albert Chan

Manager - Hong Kong Commercial Division [email protected]

Joyce He

Assistant Manager - Shanghai Commercial Division [email protected]

Beverly LW Sunn President

[email protected]

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