Beijing and Shanghai are transforming themselves into regional and international financial centres with the aggressive expansion of their business districts. Can Hong Kong retain its position as China's leading international financial hub under current planning? We expect the road to 2020 to be quite different between Hong Kong and its mainland counterparts. While Beijing and Shanghai markets look to remain roughly balanced, Hong Kong is likely to see a short-to-mid-term shortfall of supply.
Office supply
Hong Kong: There will continue to be a lack of office supply in Hong Kong in the near term. A new wave of office supply may be visible when 2017 approaches. Office completion will remain at a low level of about 145,000 sq m per annum until 2020 onwards when major projects such as CBD2 complete. Thomas Lam, Director and Head of Research & Consultancy, Greater China at Knight Frank, expects that in core districts, rents will increase in the longer term. However, in non-core districts, rents will remain stable.
Shanghai: New supply of office space will average one million sqm per annum from 2013 to 2020. The newly setup Pilot Free-Trade zone will provide a boost to office supply beyond 2020. In the long term, Thomas expects office rents to rise.
Beijing: Rents have surged in recent years, due to the lack of office space. An average 650,000 sqm of new supply will come online each year from 2013 to 2020 as a response to the supply deficiency. The East Extension of CBD will also ensure office supply beyond 2020. Thomas expects office rents in Beijing to increase in the long term.
Comparison of CBD districts in Beijing, Shanghai and Hong Kong
Beijing tends to concentrate in expanding its core CBD. Taking all Beijing’s planned projects into account, the capital’s core CBD will double the size and account for about 53% of its total office stock in Beijing. Meanwhile, Hong Kong and Shanghai will see vast amounts of future supply in decentralised districts. After 2020, their CBD districts will shrink to account for only 14% and 36% of the total stock respectively.
Looking forward, Beijing and Shanghai will see a fairly balanced office supply and demand by 2020 with large amounts of new space coming online in the near future. Rent growth should therefore be relatively stable during the period, assuming China’s economy remains strong. By 2020, Hong Kong will see limited supply in short to mid-term. Rents in Central have shown signs of bottoming and will remain largely stable in the near term. In Hong Kong’s decentralised districts, the days of surging office rents are likely to be over.
Future opportunities
Looking at Hong Kong, Shanghai and Beijing’s office markets from a long-term perspective, key development opportunities will remain in Beijing’s core CBD, while Hong Kong and Shanghai will see opportunities increasingly shifting from core CBDs to decentralised districts.
Can Hong Kong retain its position as China’s leading international financial hub under current planning?
In terms of long-term competitiveness, Thomas thinks Beijing and Shanghai are planning their business districts well, expanding core CBDs and surrounding districts and promoting themselves as regional and international financial hubs. However, the same cannot be said for Hong Kong. Although the Special Administrative Region will also see a considerable amount of new office supply in CBD2, its relative remoteness from the existing core CBD will make it difficult to create synergy between the two areas.
In order to maintain its position as China’s main international financial centre, Thomas recommends Hong Kong to put more efforts on business districts planning.