HONG KONG OFFICE REPORT

3Q10
ECONOMIC INDICATORS
ECONOMY
The Hong Kong economy remains solid backed by strong GDP growth rate of 6.5% y- 2009 2010F 2011F
o-y and persistent low unemployment rate of 4.2% in June- August. As the Hong Kong
GDP Growth -2.8% 5.6% 4.6%
economy is driven largely by the property sector, the current challenge for the Hong
Kong government facing is to effectively hold back rising property prices. Even though CPI Growth 1.9% 2.6% 2.9%
the Hong Kong government has introduced a series of property cooling measures such Unemployment 5.4% 4.4% 4.0%
as increasing down payment requirements and boosting land supply, the impact has been
marginal. It is expected that the Hong Kong government will introduce more measures Money Supply 6.6 7.2 7.7
to maintain the economic harmony and has indicated that economic growth in this year (M2) (HK$ million)
could exceed 4%-5%. Strong labor market conditions and a robust Chinese economy Source: Census & Statistics Department, HKSAR
will sustain the Hong Kong economy over the next 12 months.
MARKET FORECAST
Office leasing market rebounds strongly due to corporate expansions
With the economy recovery, strong rebound on office rent has been driven by the ABSORPTON: Economic recovery brings to
robust demand from business sectors which makes overall vacancy rate low. Office corporate expansions particularly resulted from
banking and financial services industry. More
demand is generated from its organic growth and new set-up companies. Average Office
office opening from China corporations is
supply in coming 3 years will be 0.7 million sq ft per annum (equivalent to only 30% of expected as Hong Kong maintains its financial
average supply in the past 10 years). Therefore, office market has turned to landlord’s status.
favors in some locations. However, the Greater Central rents still remain 20% lower
than the market peak achieved at Q3 ‘08. The current availability rate of Greater central CONSTRUCTION: The limited Grade ‘A’
stood at 4.9%, compared with 5.3% in Q2 ’10. office supply remains the major issues with
average supply in the coming 3 years at 0.7
million sq.ft. It is anticipated that developers
More multinational companies strive for rental savings appear to be interested in office premises
With keen competition for limited Grade ‘A’ office space and soaring rentals, more development.
financial services companies are opting to relocate to lower-cost premises for rental
savings. It is expected that more sizable occupiers will compete with each other to secure RENTAL RATES: Combined with robust
optimum premises over the next six months. In addition, as landlords have stronger demand and limited office supply, rental rates
bargaining power to choose high-quality tenants and continue to test for higher rental will increase further by around 30% in the next
12 months.
levels, some tenants are likely to make pre-let commitments earlier than the normal
timeframe to avoid paying high rents.
GRADE A OVERALL RENTAL & VACANCY RATES
Investment activities started picking up
After a wait and see attitude seen in the previous quarter, office investment activities in psf / mt h
Rent Vacancy
July started to pickup. A total transactions of 314 residential properties and purchase
agreement valued at HK$ 3.0 million settled during the quarter. Compared with the sales $130 8.0%

volume growth rate of 9.1% in June, growth slowed down in July with 5.4%. However, $120
6.0%
transaction considerations increased by 42% in July compared with 24% in June. $110
Landlords appeared to have held back stock in an anticipation of higher property prices. $100
4.0%
In addition, more investment companies acquired the whole floor of Grade ‘A’ office in 2.0%
$90
Greater Central as the investment potential is huge.
$80 0.0%
1Q07 1Q08 1Q09 1Q10 2Q10 3Q10
Optimistic about office leasing and investment market
The Hong Kong economy is expected to maintain strong momentum with healthy GDP
growth and persistent low unemployment rate. Due to the robust demand and limited
GRADE ‘A’ OFFICE RENTAL PERFORMANCE BY DISTRICTS
Grade ‘A’ office supply, it is expected that rents will increase by around 30% over the
next 12 months, which could bring back rates to 2008 levels. Moreover, we expect the
investment market to remain buoyant as investors remain optimistic about the capital 14 0
C ent r al

value growth potential. There will be a fierce competition between investors for premier 12 0
Wan C hai / C auseway B ay
H ong K ong E ast
Grade ‘A’ office, driving the asset values by around 10%-15% in the next 12 months. 10 0
T s i m Sh a T s ui
K owl oon E ast
80 D ecentr al i sed

60

40

20

S ep- 9 9 S ep- 0 0 S e p- 0 1 S ep- 0 2 S ep- 0 3 S ep- 0 4 S ep- 0 5 S e p- 0 6 S e p- 0 7 S ep- 0 8 S e p- 0 9 S ep- 10

1 HONG KONG OFFICE REPORT 3Q10

 HONG KONG OFFICE REPORT 3Q10

MARKET / SUBMARKET STATISTICS

OVERA LL YTD YTD DIRECT WTD. A VG.
VA CA NCY UNDER CONSTRUCTION OVERA LL GRA DE A GROSS
M A RKET/ SUB M A RKET INVENTORY RA TE CONSTRUCTION COM P LETIONS A B SORP TION RENTA L RA TE*
Greater Central 14,829,115 6.3% 0 0 (33,366) $97.17
Wan Chai/Causew ay Bay 8,107,026 5.0% 303,806 0 89,259 $44.13
Hong Kong East 6,890,279 4.0% 0 379,508 37,060 $26.85
Tsim Sha Tsui 8,504,700 5.9% 0 0 (5,573) $39.77
Kow loon East 7,658,048 10.0% 0 296,438 632,508 $23.80
Decentralised 4,721,084 9.4% 0 0 31,711 $23.75
TOTAL 50,710,252 6.8% 303,806 675,946 751,599 $42.58

*$psf/mth

MARKET HIGHLIGHTS
SIGNIFICANT 3Q10 NEW LEASE TRANSACTIONS
BUILDING SUBM ARKET TENANT SQUARE FEET BLDG CLASS
Citibank Plaza Central Allianz Global Investors 33,528 A
CITIC Tow er Central Ernst and Young 105,000 A
Two Pacific Place Central Pipei Jaffrray 16,000 A
Appleby Spurling & Kempe, Barrister &
Jardine House Central 7,000 A
Attorneys
SIGNIFICANT 3Q10 SALE TRANSACTIONS
BUILDING SUBM ARKET Buyer SQUARE FEET PURCHASE PRICE
69 Jervois Street Sheung Wan 93,384 $650,000,000
SIGNIFICANT 3Q10 CONSTRUCTION COMPLETIONS
BUILDING SUBM ARKET M AJOR TENANT SQUARE FEET COM PLETION DATE
Kerry Centre Hong Kong East 379,508 -
18 Kowloon East Kowloon Bay 296,438 -
SIGNIFICANT PROJECTS UNDER CONSTRUCTION/ RENOVATION
BUILDING SUBM ARKET M AJOR TENANT SQUARE FEET COM PLETION DATE
Hennessy Centre Causeway Bay 303,806 Q1 2012

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*Market terms & definitions based on BOMA and NAIOP standards.

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