The SCMP reports on the office glut…
How do you solve a 15-million-sq-ft empty office space problem in Hong Kong, a size larger than all the space in existing prime office buildings in the city’s main business district in Central?
This is the dilemma facing Hong Kong office landlords and asset managers, given the current vacancy rates and future supply of new buildings.
Given the long-term trend, it is likely to take at least seven years for the demand to catch up with the supply, according to property consultancy CBRE. Office landlords would thus struggle to fill the void, it added.
“By the end of this decade, the vacancy pressure is likely going to be very similar to what we are seeing in the market today,” said Marcos Chan, executive director and head of research at CBRE Hong Kong. “That is on an assumption that the market demand will be quite similar to what we used to have, before the market experienced a downturn a couple of years ago.”
The seven-year estimate appears to be on the optimistic side. If the current net annual demand for prime office space stagnates at 1 million sq ft, it could take 15 years to fill these vacant offices with tenants, according to data cited by Edward Chan, director of S&P Global Ratings.
Hong Kong developers added 8.5 million sq ft of office space since mid-2019, failing to adjust for economic calamities. As anti-government protests and Covid-19 outbreaks sent the economy into a recession, the city’s grade A office market shrank by 1.3 million sq ft and rents slumped 40 per cent, according to data tracked by CBRE.
What level of incompetence does it take for planners and policymakers to bring about a massive glut of offices and a simultaneous shortage of affordable housing? Why did bureaucrats decree over a decade ago that Kowloon Bay would become an office hub like Central when they could have earmarked the space for homes?
The article adds…
…[CBRE] estimates that 186 premium office buildings with 8 million sq ft of vacant space could be suitable for conversion into accommodation.
The paper is drawing on a CBRE report, which cleverly uses the word ‘hub’ a lot in proposing government flexibility on repurposing older and smaller office blocks…
CBRE’s research identifies emerging sectors such as education, innovation and technology (I&T), healthcare and wellness, and creative and cultural industries as key drivers of growth in Hong Kong’s economy due to demographic changes and supportive government policies. These sectors require a different type of office space, one that combines living, working, and social elements to foster collaboration and innovation.
The government anticipates a shortage of 180,000 workers across various sectors in the next five years, highlighting the need to recruit labor and tertiary students from overseas. Coupled with policy measures to attract high-calibre students and skilled professionals to Hong Kong, the demand for accommodation is expected to surge.
Ada Fung, Executive Director, Head of Advisory & Transaction Services, CBRE Hong Kong said: “With demand for buildings that combine living, working, and social elements continuing to grow, the trend of living and working under the same roof will likely become more common in the coming years. We recommend landlords to adopt a hub-based commercial buildings with accommodation provided within a specific industry ecosystem. This can create synergy among occupants, enhance management and collaboration, and ultimately increase occupancy rates “
…landlords may need to fully or partially convert buildings to include accommodation or other non-domestic uses within traditional commercial space to achieve a round-the-clock ecosystem in commercial buildings.
Another real-estate consultant is pushing for offices to be converted into student housing, in particular.
Main problems: bureaucrats who have a longstanding aversion to changes in land/building use (unless a hefty lease conversion premium makes it unviable), and to the idea of more housing.
Also in the SCMP, Mike Rowse recommends a broad-based consumption tax to fix Hong Kong’s budget deficit…
[I suggest] we make a start on preparations for some form of a goods and services tax. I realise it will not be popular and will require very careful presentation and explanation. But we are kidding ourselves if we think the debate can be deferred indefinitely. It is inevitable and we should begin the conversation immediately.
My suggestion is to start small and gradually increase the range of goods and services covered. How about starting with something simple like utility bills such as gas, water, electricity and telecommunications? Eventually, we could also tax restaurant bills and luxury goods. As much as possible, we should keep collection at the wholesale level to simplify administration.
There will undoubtedly be pleas for exemptions. There is bound to be opposition to imposing the tax on kindergarten and school fees or medical expenses for example. It will take a strong financial secretary with the support of a disciplined legislature to resist. But the general aim should be to include everything eventually.
We can also set the tax at a low percentage initially – 3 or 5 per cent – and increase it later as necessary. Singapore followed this route, increasing its sales tax to 9 per cent last year without a noticeable loss of competitiveness.
We must borrow very large sums to finance essential capital expenditure. We can do so – and we must. Yet to maintain our reputation for fiscal prudence, and keep borrowing costs low, we must show capital markets that we have a credible plan to achieve fiscal surpluses and repay whatever we borrow. That means a goods and services tax.
Of course, such a tax is regressive. A 5% tax on electricity hurts the poor far more than the wealthy. It’s as unfair as charging below-average earners a higher salaries tax rate than millionaires. At the very least you would have to raise welfare payments and the minimum wage to compensate.
It might be better to start with higher taxes on luxuries such as designer label shoes and handbags, ugly watches, tacky diamond necklaces – the entire inventory of high-end malls. Plus bigger/flashier models of cars. Why not additional stamp duty/capital gains tax on apartments over (say) HK$25 million? But here we run into vested interests: vendors of overpriced crap (and their landlords) will whine that it could deter tourist expenditure. Civil servants and their buddies buy big cars and apartments.
And then there’s the option of cutting bloated civil service salaries. Which would have to include retired bureaucrats’ pensions, on which subject former Administrative Officer Rowse is curiously silent. But in order to get the wider public to accept a GST, you would have to tackle that as well.
From HKFP – Security Secretary Chris Tang waxes wrathful about the Guardian’s piece on Jimmy Lai being denied his right to choose his own legal representation.
Start by taxing utility bills . . . then eventually luxury goods? Someone take away that man’s JoyYou card!
Good thing that the NatSec popo – HK’s only growth industry these days – are using tax revenue to expensively build themselves new towers in Tai Kok Tsui rather than moving into any of these millions of empty square feet, then.
Mike Rowse obviously knows such a tax would be regressive. I imagine that this is rather the point. A “strong financial secretary with the support of a disciplined legislature” can ignore the rabble. What are they going to do? Vote? Protest? Leave? Pull their kids out of kindy and not go to the hospital when they have heart attacks? Hahahahaha.
But pissing off the rich and the commercial landlords that host the luxury tat outlets is still a somewhat dicey proposition for the All Patriots All The Time Regime.
Hong Kong’s economy is beginning to resemble that of Japan in 1990. The Japanese believed the economic correction (which ultimately lasted decades) was a minor blip and the boom times would surely return.
The Japanese kept spending until they finally realized (like Wile E. Coyote going over a cliff) that the good times were not coming back.
Hong Kong’s economy will not be saved by cutting transit subsidies for the elderly.
It’s time to start killing off huge vanity projects, like Lantau Tomorrow Vision, and closing government departments, like the Consumer Council and TDC, that generate little value.
One Humphries Avenue TST completed in 2023. Twenty three floors, 60,000+sq.ft. all vacant.
At first the banners offered shop / office units for rent but some months ago this was replaced with “building for sale”. Good luck with that.
Behind it on Cameron Road another development twice the size is going up. There are a number of other new towers nearby in various stages of development.
The first TST Outline Zoning Plan in over a decade is going through the process. One would have thought that this provided the opportunity to amend the blanket Commercial zoning for streets south of Austin, imposed decades ago when CBD was the prevailing vision, in order to encourage more market friendly options.
But of course that would be tantamount to admitting that the planners got it wrong, again.
If the Spineless Communist Mouth Piece (SCMP) would look at pretty much every statistic they would not parrot the line that the 2019 disturbances had a negative impact on the office etc etc market. It’s the C-virus, stupid!
Mike Rowse: How about a tax on wine?
BTW, did anybody spot and tally up how much Hong Kong’s „Defense Budget“ is? You know, the one we need to defend us against T E R R O R I S M?
@Cassowary
‘A “strong financial secretary with the support of a disciplined legislature” can ignore the rabble. What are they going to do?’
Not to belittle your point, or dismiss HKSARG’s propensity for suicidal levels of stupidity, I think it is worth pointing out that the current collapse of the economy & government finances is the direct result of the last time they decided they could safely ignore the rabble.
I also suspect knowing that the government’s actions have left them holding 15m sqft of worthless office space that they purchased at huge expense is likely already pissing off the rich and the commercial landlords.
Speaking as a fairly well-off idiot who paid nearly 3,000 Hong Kong for a fairly mediocre dinner for two in a Central restaurant last week, I think that when I take myself to hospital to have my head examined Mickey Mouse should come with me so a proctologist can park his half-baked opinions well out of harm’s way