Royal Bank of Scotland Group Plc and Aon Corp. are among financial firms moving some operations from Hong Kong’s Central business district where a space shortage has pushed up rents in the world’s most expensive office market.
RBS will give up two floors of more than 26,000 square feet in total at AIA Central and relocate some staff to the Island East district on Hong Kong Island, spokeswoman Lisa Irvine said in an e-mail. Chicago-based Aon, the world’s largest insurance broker, will move its entire operation to a district further east, according to three people with knowledge of the shift.
Global firms have become more mindful of costs as U.S. economic growth stalls and Europe is in the midst of a sovereign debt crisis, and companies announced more than 120,000 job cuts this year, data compiled by Bloomberg Industries show. Grade A office rents in Hong Kong reached $213.7 per square foot a year as of June, the costliest in the world, according to Colliers International.
“Banks are looking at their people one by one and deciding whether they need to be in Central,” said Edward Farrelly, head of Hong Kong research at CB Richard Ellis Group Inc. “We may see some of them downsizing their occupancy in the district.”
The prime office vacancy rate in Central fell 1.5 percentage points from two years ago to 4.25 percent in September as financial services firms expanded with no new supply added from 2007 to 2010, according to CB Richard Ellis. Rents in the district average about HK$120 ($15) per square foot a month, while those in Island East, about a 15-minute train ride away, are about HK$45, the Los Angeles-based broker said.
The prospect of more banks moving offices from Central, plans by some firms to cut staff, and the recent global equity rout may prompt landlords to lower rents, said Brian Brenner, Hong Kong-based national director for tenant representation at Jones Lang LaSalle Inc.
“We are starting to see evidence of landlords softening their offerings to lure tenants,” said Brenner. “There may be an emerging window of opportunity for companies to secure below-market terms.”
RBS, which currently occupies five floors at AIA Central, will move some staff to Taikoo Place, an office complex developed by Swire Properties Ltd. in the Island East district. Most of the staff currently at Taikoo Place are back office and operations, said Irvine. Some staff will be moved to other floors at AIA Central.
AIA Central was developed by American International Group Inc., Lai Sun Development Co. and CapitaLand Ltd. RBS also has offices at Cheung Kong Center, owned by Hutchison Whampoa Ltd.
Chicago-based Aon is vacating seven floors of almost 59,000 square feet in Aon China Building for about 50,000 square feet in Times Square, a mall-office complex in the Causeway Bay district owned by Wharf Holdings Ltd., the people said, asking not to be identified as the information is not yet public. Patrick Li, a spokesman for Aon in Hong Kong, declined to comment.
Central’s higher rents have driven some banks and professional services providers such as law and accounting firms out of the district to less expensive areas. Accounting firm KPMG said in June it will relocate “a substantial proportion” of its front office staff in Central to Hysan Place in Causeway Bay when the building is finished next year.
Allianz Global, the investment unit of Allianz SE, Europe’s largest insurer, in May moved from Cheung Kong Center to nearby Citibank Plaza, where average rents were about 30 percent lower at the time. Deutsche Bank AG last year completed its relocation to the International Commerce Centre in West Kowloon.
Central’s rents, approaching a peak before the 2008 global credit crisis, have previously prompted defections. In 2007, Morgan Stanley and Credit Suisse Group AG moved their entire operations across the harbor to the ICC in West Kowloon, a reclaimed area only a five-minute train ride from Central.
“We don’t envision another mass exodus from Central,” said CBRE’s Farrelly, adding a lack of new supply in the district over the next decade will continue to support rents.