Posted Dec 20, 2006, 10:12 AM
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Join Date: Feb 2003
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In Asian real-estate market, Hong Kong has edge
Office market booms as firms seek space near Chinese cities
By Maura Webber Sadovi
13 December 2006
The Wall Street Journal Asia
Hong Kong's commercial real-estate market is booming again. Glittering modern office towers command dramatic Victoria Harbor views and among the world's richest rents. Some developers are expanding the boundaries of the area's traditional office market and adding new icons to the growing skyline.
Despite increasing competition from Shanghai, many U.S. and multinational companies and financial firms still favor locating their Asian headquarters in Hong Kong, attracted by the cosmopolitan English-speaking region that is home to some seven million people just southeast of mainland China. As investor interest in China has intensified, Hong Kong has drawn many bankers, lawyers, accountants and other businesspeople because of its proximity to China and a hospitable living environment offering amenities such as international schools.
"Hong Kong is a leaping-off point for China," says Andrew Ness, executive director of research for CB Richard Ellis Group Inc. in Asia. "It's a good place to marshal your forces."
One large project under way: Hong Kong-based Sun Hung Kai Properties Ltd.'s 118-story tower, to be called the International Commerce Centre, in Kowloon, across the harbor from Hong Kong's core central-business district. The tower will include both office and hotel space.
For now at least, the strength of Hong Kong's real-estate market appears to put to rest a long-simmering question -- whether Hong Kong will be overshadowed by other cities in Asia. Many analysts say the region's legacy, as a former British colony that became a special administrative region of China in 1997, still gives Hong Kong an edge as a center of commerce.
The good times come just three years after the region's economy was in the doldrums after being battered by the Asian financial crisis of the late 1990s, the tech bust and the severe acute respiratory syndrome outbreak in 2003, according to Moody's Economy.com. Since 2004, employment levels have been on the rise and insatiable investor interest in Asia has helped the Hong Kong region's economy come roaring back, sending the Hang Seng Index to records in November.
New office supply is expected to provide some relief to tenants who have seen stiff increases recently in prime rents. After dropping out of the list of the 10 most expensive office-space markets from mid-2002 to mid-2005, as ranked by CB Richard Ellis, Hong Kong was the fifth most-expensive out of 176 markets in major cities world-wide, according to a survey released in November. London's West End and Tokyo's Inner Central area were the first and second priciest, respectively. The estimated cost to occupy prime space in Hong Kong was US$116.25 per square foot annually, a figure that includes rent, local taxes and service charges.
Still, the region's high prices put off some investors. Hong Kong was ranked 15 out of 19 Asian-Pacific cities in terms of prospects for commercial real-estate development and investment, based on a survey conducted between June and August of 175 real-estate experts including lenders, investors and developers by the Urban Land Institute and accounting firm PricewaterhouseCoopers. While Hong Kong is a favorite target for first-time investors in Asian-Pacific real estate, the ranking could reflect concern that the market is overpriced, says Stephen Blank, a senior resident at the Urban Land Institute.
Indeed, Hong Kong's share of the growing direct commercial investments flowing into the Asian-Pacific region shrank to 10% in the first half of 2006 from 17% in the year-earlier period, according to a recent study by real-estate services firm Jones Lang LaSalle.
Still, Guy Hollis, international director in the Asian-Pacific region with Jones Lang LaSalle's International Capital Group, believes Hong Kong will continue to be a go-to city in Asia, just as the U.S. boasts gateway cities such as Chicago and New York. Mr. Hollis says investor demand for property there will remain strong, though Hong Kong's transaction levels are constrained because many of its building owners are long-term holders of property. "If I had a couple buildings to sell in Hong Kong," he says, "I could sell them."
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