In the world’s most expensive city, even the financial industry overseer needs to put up cash, or be priced out of prime office space.
That is what’s happening to Hong Kong’s Securities and Futures Commission (SFC), as it finds its HK$3 billion (US$383.5 million) budget insufficient for even half of the asking price of a top-tier, Grade A prime office in the city centre.
The SFC, which has been renting space at the Cheung Kong Centre since 2013, is due to relocate by 2022, with the option to break the current lease in 2020. The agency, which needs 180,000 square feet (16,700 square metres) of space to accommodate 960 employees, had been looking to buy its own office as a hedge against the city’s soaring rental prices.
The SFC must set aside HK$253.67 million for the fiscal year starting in April for the city’s most expensive real estate, even if its landlord – Hong Kong’s wealthiest businessman Li Ka-shing of CK Asset Holdings – doesn’t raise next year’s rent. Before moving to Cheung Kong, the SFC was housed at Hongkong Land Holdings’ Chater House building.
Rental prices for prime offices soared in Hong Kong to the top of the world in 2017 for the second year running, as mainland Chinese companies with deep pockets chased after premium space with marquee addresses. The most expensive space in Central is now demanding US$323 (HK$2,523) per sq ft per annum, or HK$210 per sq ft per month. That is more costly than New York’s Midtown, London’s West End and Beijing’s Finance Street.
The prices for buying commercial space also surged, bolstered by a couple of blockbuster sales in 2017 that set records, putting the option of buying way out of the SFC’s budget. The money set aside translates to HK$16,660 per sq ft, which is not even enough to get an office among the city’s Top 10 locations, according to property agents.
“As the market price for buying offices has risen to between HK$40,000 to HK$50,000 per sq ft in Central, the SFC may need between HK$7 billion and HK$8 billion to buy the space,” said Chairman Carlson Tong Ka-shing, to the city’s Financial Affairs panel lawmakers on Monday. “That is too high a price.”
The remaining options are either to borrow to afford buying an expensive office at the prevailing market price, or move out of the Central business district to outer suburbs or districts, where rents and sales prices are half of that of Central, Tong said.
More companies, including law firms, moving out of Hong Kong’s CBD – but not just to escape high rents
“The SFC could also borrow money, but we don’t want to borrow too much, as that would add financial pressure on the SFC,” he said.
The SFC isn’t alone in this regard. Law partnerships such as Baker McKenzie, accounting firms and even some of the world’s largest commercial banks like Citibank had been making a move out of Central to new office towers elsewhere. Baker moved to Quarry Bay, seven stops further east on Hong Kong Island on the subway network while Citibank moved to Kowloon East across the Victoria Harbour.
“We may consider other areas, but we would need to find a location where it is convenient for other market participants and the public” to approach the SFC, Tong said.
With reporting by Peggy Sito.
More from South China Morning Post:
- Mainland Chinese financial firms drive Hong Kong office rents
- Hong Kong office rents under pressure as mainland Chinese demand slows
- Foreign firms relocate their Hong Kong offices to outer suburbs as mainland companies take over Central