Hong Kong investment banks withdrawing from Central area

Hong Kong's International Finance Centre, whose rental fees have gone up over 600% in 10 years.
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Confronted with exorbitant rent hikes, many financial institutions in Hong Kong are withdrawing from the Central area.

Rents at the International Financial Center, a hallmark building in Central, have reached HK$170-180 (US$22-23) per square foot per month. If you are lucky and do not care for an office view, you may get a 10-20% discount. Even so, an office measuring 100 square meters will still cost HK$150,000 (US$19,300) a month to rent.

In late June this year, UBS and Societe Generale entrusted appraisers to study the withdrawal of their office from Central. Barclays and some other investment banks may follow suit when the leases on their offices in the area expire.

"In addition to rental hikes, some investment banks plan to exit Central due to the unstable global economy and bearish business outlook," remarks Tao Ruhong, senior director of DTZ Greater China.

The exodus from Central was initiated by Morgan Stanley in 2007, when it moved across the harbor to Western Kowloon. The move enabled the company to save 50%, or HK$10 million (US$1.29 million), of office rental fees per month. Subsequently, Credit Suisse and Deutsche Bank have also followed suit.
10 years ago, when UBS first rented office space in the International Financial Center, it was around HK$30 (US$23) per square foot per month. Now it has risen to nearly US$200.

Since last year, investment banks in Hong Kong have started to scaleback their operations and costs via layoffs and internal cost controls.

Responses from employees for the move from Central are mixed. An employee of Credit Suisse notes that compared with the aged office buildings in Central, office buildings in Western Kowloon are newer and have better facilities. Others, though, complain of troublesome transportation, since their clients are mostly located in Central and their residences are on Hong Kong Island.

In addition to investment banks, other financial institutions are also considering withdrawal from Central to control their costs.

Yian Weicheng, director of Jones Lang LaSalle Hong Kong, notes that some non-banking financial institutions or other companies can consider moving to non-core commercial areas, such as Causeway Bay or Wanchai, which are still on Hong Kong Island. Development of transportation and other infrastructural facilities in those non-core areas has greatly narrowed their gap with Central.

"Take Eastern Kowloon for instance. Office rental there is much lower and is quite stable," says Yian Weicheng. Eastern Kowloon is a major source for the supply of new office buildings. Those new office buildings boast better facilities and larger space per floor, sparing large institutions the need of locating their offices on multiple floors.