hong kong annual occupier survey report 2019 · occupiers currently occupying office space on hong...

HONG KONG ANNUAL OCCUPIERSURVEY REPORT 201926 June 2019

COL L IERS RADAR OFFICE | HONG KONG | 26 JUNE 2019

Zac TangManager | Research | Hong Kong

+852 2822 [email protected]

Rosanna TangHead of Research | HK & Southern China

+852 2811 [email protected]

mailto:[email protected]


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Business outlook: Occupiers have shown concern against the backdrop of a slowing global economy and US-China trade tension. We expect more firms to wait and see over the next 12 months, while 41% of occupiers plan to expand over the next three years.

GBA initiatives: Overall, the GBA initiativeshould drive net growth in office space demand in the future, as 20% of occupiers indicate that they have plans to expand their local operations in Hong Kong due to the GBA initiative.

Relocation plan: 41% of occupiers plan to relocate from their current offices upon lease expiry. Although over half of them prefer same district relocation, Kowloon East and Island East are still attractive to occupiers from other submarkets.

Operational strategy: Moving to a more flexible working culture, occupiers are adopting technological upgrades and enhanced flexibility in the workplace, with the Flex-and-Core model becoming increasingly popular.

Wellness: Amid rising awareness of employee experience, we should see occupiers allocate more resources to boosting workplace wellness to attract talents and improve productivity.

Summary & Recommendations

Rosanna TangHead of Research | HK & Southern China

Fiona NganHead of Office Services | Hong Kong

9%of occupiers are uncertain about their business outlook, versus 3% in our 2018 survey. The slowdown in the global economy and US-China trade tensions have been the major causes of uncertainty.

This is the third consecutive year in which we have conducted our Colliers Hong Kong Occupier Survey. This year, we have collected responses from 363 respondents between 30 April and 15 June 2019 – a period which captures the most recent shifts in occupier sentiment caused by escalating international trade tension and local political tension.

The majority of the respondents are domiciled in Hong Kong (53%), followed by companies from Europe (18%) and Asia (11%). Key sectors of the respondents include the Finance, Insurance and Real Estate (FIRE) sector (36%), sourcing and logistics (21%), retail and wholesale (14%) and Technology, Media and Telecoms (TMT, 11%).

Apart from collecting occupiers’ responses from the survey, this year we have also interviewed a few key office landlords for their views on the respective topic, in order to provide a more comprehensive picture of current and future Hong Kong office market trends. We would like to express our gratitude to all respondents and landlords who have participated in this report.

18%of occupiers would be attracted to lease if landlords offered additional green building facilities. Awareness of wellness in the workplace is on the rise, with good air quality and sufficient l ighting points of focus for office occupiers.

26%of occupiers are considering using flexible workspace as a part of their strategy. In addition to workspace flexibility, more occupiers have been moving to an Activity-Based Working model.

49%of occupiers plan to maintain their office size despite the uncertain outlook. Information and Technology stays expansionary; Finance and Professional Services remains cautiously optimistic; while Manufacturing and Trading are more l ikely to downsize.

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SURVEY OVERVIEW

PROFILE OF 363 RESPONDENTS

Locations of participating companies Date of response

Finance, Insurance & Real Estate

Sourcing / Manufacturing / Trading / Logistics

Sector distribution

36% 21%

Retail and Wholesale

14%

TMT

11%

Professional & Business

Services

9%

Others

9%

15 Jun

30 Apr

15 May

31 May

5 MayUS President Trump decides to raise tariffs on Chinese products

16 MayUS announces it will ban Huawei products

9 June Start of recent local protests

1 JuneChina raises tariffs on US products

Hong Kong Island 55%Kowloon 45%

Sheung Wan / Wan Chai /

Causeway Bay

20% Central / Admiralty

24%8%

Island East

Kowloon East

18%

New Territories

7%

Other Kowloon

11%

Tsim Sha Tsui

9%

Other HK Island 3%

4%

6%

8%

11%

18%

53%Hong Kong

Europe

Asia

North America

Mainland China

Others

Domicile of participating companies

Source: Colliers International

40%

8%

52%


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IN NEXT 12 MONTHS, MORE FIRMS OPT TO WAIT AND SEEProlonged US-China trade tension and slower economic growth have significantly increased the proportion of respondents in our survey uncertain about their business outlook over the next 12 months. The proportion in this position has increased to 9% in 2019 from 3% in 2018 .

Despite the market uncertainties, most occupiers are still relatively confident about the business outlook, with 48% of the respondents expecting their businesses to stay the same, while over one-third (35%) expect their firms to expand in the next 12 months. Among those sectors intending to expand over the next 12 months, banking and finance (28%), real estate and construction (12%), and professional services (11%) are the top three.

Expected office requirements in the coming three yearsBusiness outlook in the coming 12 months

44%

40%

3%12%

38%

52%

6% 3%

35%

48%

8%

9%

Expansion Same Contraction Uncertain

2019

2018

2017

IN NEXT THREE YEARS, OVER 40% OF OCCUPIERS PLAN TO EXPANDOccupiers in general still display a relatively positive outlook towards expanding their business in Hong Kong over the next three years. 41% of respondents indicate that they plan to expand, while only 9% expect to contract.

Among those occupiers intending to expand office space needs by over 10% over the next three years, Banking and Finance (21%) and TMT (20%) are the two key sectors with the most positive intentions. This echoes our view that of the innovative technology sector as an emerging driver of future office demand - a theme which the government has been emphasising in its focus on development of Hong Kong as a smart city in recent years.

Top three industry:

Banking & Finance (28%)

Real Estate & Construction (12%)

Professional & Business services (11%)

0%

10%

20%

30%

40%

50%

Expand >10%

Expand upto 10%

Stay thesame

Reduce >10%

Reduce upto 10%

ReduceExpand

BUSINESS OUTLOOK


TMT (20%)

Source: Colliers International Source: Colliers International

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WHAT MARKET FACTORS COULD MOST AFFECT OCCUPIERS’ BUSINESS OUTLOOK?2019 is set to be a more cautious year with uncertainty surrounding the political and economic environment. In this year’s survey, we have selected four major market factors for our respondents to determine which will most impact their business outlook over the next three years.

The occupiers identify “a slower global economic forecast” (35%) and “US-China trade war” (32%) as the important factors most l ikely to impact their business outlook over the next three years. While the occupiers picking “a slower economy” come from a broad base of industries, those who chose “US-China trade war” mainly come from shipping and trading, banking and finance, and retail and wholesale industries. Meanwhile, “The Greater Bay Area Initiative” comes third on the l ist, with occupiers from the real estate and construction industry seeing this as the critical factor, while almost half of the respondents choosing “stock market” as the most important factor come from the banking and finance industry.

If we compare the four factors against the occupiers’ business outlook, the results show that the occupiers seeing trade war as the most important factor intend to expand over a longer term of “the next three years” (40%) rather than over the “next 12 months” (27%).

Factors most affect occupiers’ business outlook in the next three years and occupiers’ real estate plan

13%

20%

32%

35%

Stock market

The Greater BayArea Initiative

US-China tradewar

A slower globaleconomic forecast

Next 12 months Next three yearsSame Expand Same Expand

48%

54%

47%

36%

49%

51%

37%

50%

38%

27%

35%

45%

38%

40%

41%

43%

BUSINESS OUTLOOK

% of respondents

Retail & Wholesale

(17%)

Shipping & Trading

(17%)

Real Estate & Construction

(24%)


Banking & Finance(19%)


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THE GREATER BAY AREA INITIATIVE SHOULD DRIVE ORGANIC EXPANSION DEMAND IN THE HONG KONG OFFICE MARKETThe Greater Bay Area (GBA) initiative is set to foster the region as a global centre for financial services, trade, logistics and leisure. Recently completed large infrastructure projects should also enhance integration of talent, capital and business flows across the cities within the GBA. Against this backdrop, in this year's survey we asked the occupiers about their business and operation plan over the GBA initiatives.

Over half (55%) of the respondents indicated that their business and operations should not experience impacts or changes under the GBA initiative. Interestingly, one-fifth (20%) of the occupiers indicated that they have plans to increase the size of the local operations in Hong Kong due to the GBA initiative, while the other 14% said they will l ikely expand business in other GBA cities.

Among those who indicated their intention to “expand the location operation size” in Hong Kong, Banking and Finance (23%) and TMT (18%) are the top two sectors, while over half of the occupiers come from core and fringe CBD (Central 30%; Fringe 22%). We expect these areas to see some organic growth in office demand in the future.

BUSINESS OUTLOOK

How does the Greater Bay Area Initiative affect your business and operational decisions?

11%

14%

20%

55%No impact

Expanding the local operation size

Reducing expatriate/local staff ratio in Hong Kong

Increasing budgets for business growth in other GBA cities

By current location

Central / Admiralty

30%

Sheung Wan / Wan Chai / Causeway Bay

22%

Kowloon East14%

Island East7%

Other Hong Kong Island

districts7%

Other Kowloon districts

7%

Tsim Sha Tsui7%

New Territories6%

By Industry


Banking & Financial Services

23%Others29%

TMT19%

Sourcing and Trading

11%

Retail and Wholesale

10%

Real Estate

and Con-

struction

9%

Remarks: Percentages may not add up to 100% due to rounding

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OVER 40% OF OCCUPIERS ARE CONSIDERING RELOCATION Relocation has been a common option for occupiers upon lease expiry, usually driven by the higher occupancy costs and the l imited new supply in certain submarkets.

In this year’s survey, around 41% of the occupiers indicated they are either “very l ikely” to relocate or will “consider” relocating their current offices upon the next lease expiry.

Occupiers currently occupying office space on Hong Kong Island display higher intentions for relocation. This may well reflect high occupancy costs: average rents on Hong Kong Island have increased 14.3% over the last three years, compared to the 4.7% and 1.4% for average rent in Kowloon and the New Territories, respectively, over the same period.

The survey results also suggest that occupiers in Kowloon and the New Territories are more l ikely to stay in their present location. Rents here are more affordable while options for relocating to a cheaper location are limited.

Looking by submarket, occupiers in Island East indicate the greatest l ikelihood of relocation. We believe that this reflects fast rental growth over the last few years, which has provided cost-conscious companies with an incentive to move.

Overall

BUSINESS OUTLOOK

59% 31%

53%

57%

55%

40%

36%

30%

7%

7%

15%

10%

Hong Kong Island

Sheung Wan/ WC/ CWB

Island East

Tsim Sha Tsui

Kowloon East

New Territories

Kowloon & NT

Very likelyConsideringUnlikely

70%

66%

67%

30%

27%

23%

7%

10%


Occupiers’ relocation plan upon next lease expiry - by current location



Central/ Admiralty

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WHERE ARE OCCUPIERS’ RELOCATION PREFERENCES?Among the occupiers with relocation plans, 54% expect to relocate within the same district, meaning that 46% plan to relocate to other districts.

21% of occupiers with relocation intentions prefer to relocate to the core CBD (Central and Admiralty), even though the majority of them are currently from the same district. This implies that some occupiers are very willing to stay in core locations for the business and professional community or reasons of prestige. Meanwhile, some occupiers currently staying in the fringe CBD (Sheung Wan/ Wan Chai/ Causeway Bay) have also indicated their plan to relocate to the core CBD.

Kowloon East is another popular location option among occupiers with relocation plans, with half of that relocation demand coming from outside the Kowloon East submarket.

Occupiers’ preference of relocation by submarket*

For occupiers indicating they are “considering” or “very likely” to relocate, 54% indicated their preference for relocation within the same district

BUSINESS OUTLOOK

37%

16%

20%

9%

6%

5%4% 3%

Central / Admiralty Sheung Wan / Wan Chai / Causeway BayKowloon East Island EastOther Kowloon / New Territories Tsim Sha TsuiKowloon West Wong Chuk Hang

Occupiers’ current location versus relocation preference

Central / Admiralty

Sheung Wan / Wan Chai /

Causeway BayIsland East Other HK Island Tsim Sha Tsui Kowloon East

Other Kowloon/ New Territories Total

Central / Admiralty 21% 1% 3% 1% -- -- 1% 27%Sheung Wan / Wan Chai / Causeway Bay 8% 11% 1% -- -- -- 1% 22%

Island East 1% 2% 3% -- 1% 3% -- 10%Other HK Island -- 1% 1% -- 1% 1% 1% 4%

Tsim Sha Tsui 1% -- -- -- 3% 2% 1% 7%Kowloon East 1% -- 1% 2% -- 10% 1% 15%

Other Kowloon/ New Territories 4% -- -- -- 1% 4% 6% 15%Total 37% 16% 9% 3% 5% 20% 10% 100%

= same district relocation preferenceRemarks: % indicate the proportion of respondents who answered they are “considering” or “very likely” to relocate

Occupiers current locations

Top relocation destinations


LANDLORDS’ VIEW –BUSINESS OUTLOOK

Landlords’ portfolios remain healthy despite market uncertainties• Most portfolio landlords have yet to see

any rental impact from the global uncertainties – rent review adjustments are similar to the previous year and tenant payments are on schedule

• Overall, key landlords have found that vacant space has been quickly backfilled. In fact, some well-known occupiers in the banking sector are still seeking organic growth within the CBD area

• However, some occupiers are displaying a more wait-and-see attitude to business expansion

• In line with the findings of our occupier survey, landlords suggest that requests for rental increases in lower-rent submarkets like Kowloon East are likely to encounter resistance

Outlook from Landlord – cautiously optimistic• Some landlords expect the US-China trade

war to remain on the market radar for the next 12 to 18 months

• Most landlords are not seeing immediate actions by their occupiers to expand or shrink their offices in Hong Kong due to the GBA initiative, even though most occupiers are aware of the initiative and have already dedicated staff to monitor and focus on this area

• We expect the new initiatives by the Hong Kong Stock Exchange (HKEx) in the financial market, including the Bond and the Stock Connects*, to trigger more secondary listings in Hong Kong. This should be positive for future office demand

*A collaboration between the Hong Kong, Shanghai and Shenzhen Stock Exchanges, Stock Connect allows international and mainland Chinese investors to trade securities and bonds in each other's markets through the trading and clearing facilities of their home exchange.

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The workspace strategy planned to be implemented

11%

16%

22%

25% 26%

14%

20% 20%

28%

18%

Fixed deskenclosed officeand/or cubicle

Fixed desk - Openplan

Hot Desking -Open plan

Activity-BasedWorking

Flex and core

2019 2018

IMPROVING STAFF EXPERIENCEGlobal leading companies continue to embrace a collaborative working culture and employee experience. We have found that the majority of the occupiers show increasing interest in moving to an Activity-Based Working environment or to combining flexible workspace with their conventional office space.

In 2019, we witnessed that more occupiers are already in action moving parts of their operation to experience an Activity-Based Working environment, in order to boost productivity by improving team spirit and communication. As restacking helps to improve staff experience, it can also achieve the goal of attracting and retaining talents and young professionals. Occasionally, cost savings can also be a bonus for their new workspace.

Amid fast changing company structures and technological advances, flexible workspace is also in demand because it provides greater flexibility for occupiers to increase or reduce scale in a shorter lease cycle.

TECHNOLOGICAL UPGRADES DRIVE ACTIVITY-BASED WORKINGMore collaboration within or between teams or departments implies that staff are encouraged to work in spots which suit their work nature and boost their productivity. Technological upgrades are usually required to maintain efficient communication for higher staff mobility. Fast Wi-Fi, individual laptops, as well as a convenient and secured online social platform have become the basic requirement for Activity-Based Working. We are also witnessing more occupiers allowing their staff to work from home or anywhere outside the office. This freedom allows staff to allocate more time to work instead of travelling, and reduces concern about locating offices in decentralised areas. As such, virtual meeting tools and user-friendly room booking systems are also critical for staff to arrange meetings with their cl ients from anywhere.

0% 10% 20%

Intranet

HR online process, e.g. e-learning, e-expenses,e-leave, e-recruitment

Digital facility management: room bookingsystem, occupancy sensors

Enterprise social media tools, e.g. slack,yammer

On-line staff engagement or social platform

Virtual meeting tools, e.g. Webex, go-to-meeting, Skype for Business

External social networks, e.g. Facebook,LinkedIn

2019 2018

Technological features planned to be installed in the next 12 months

OPERATIONAL STRATEGY & WELLNESS


11


14%

17%

13%

15%

2%

7%

8%

Office wellness programmes

20192018

OFFICE AMENITIES AS LEASING INCENTIVESGiven a higher degree of employee experience in demand, multinational companies have been looking for ways to upgrade their offices with additional facilities in order to energise their workplaces and increase staff morale. However, since provision of additional on-site amenities is constrained by l imited space and high rental costs, landlords offering the facilities in greatest demand should attract anchor tenants into their properties.

Meeting rooms or event venues, gym rooms or cafés and green buildings facilities have become the top three amenities which catch occupiers’ attention. Meanwhile, flexible workspace facilities provided by landlords have also become popular. This approach gives priority to existing tenants in the building and also allows occupiers to move into a Flex-and-Core model (i.e. a combination of flexible workspace and fixed desk space in traditional offices).

21.4%

20.7%

18.3%

14.4%

8.9%

4.6%

4.3%

4.1%2.9%

0.4%Meeting rooms / Event venues for building’s tenantsGym / Café

Green building system / Facilities

Flexible workspace

Executive toilets with shower

Executive lift services

Electrical charges for private cars

Registration / Turnstile system

Facial recognition access security

Other (please specify)

Amenities incentives from landlords

LIIMTED EFFORT FOR WELLNESS DESPITE INCREASING AWARENESSOccupiers have become more aware about the correlation between staff health and productivity. Air quality and sufficient l ighting have been the focus for occupiers in Hong Kong, who have taken them as serious consideration when valuing their leasing options.

When occupiers restack offices into an Activity-Based Working (ABW) environment, it provides a large varieties of facilities, including wellness facilities which are hard to be found in traditional offices.

However, given the strong demand and low vacancy rates, property owners find it less of a priority to invest in green building facilities to attract tenants. Some wellness facilities may only be available with additional charges, or occupiers need to install such facilities by themselves.

OPERATIONAL STRATEGY & WELLNESS

*Remarks: “Mothers room” is a newly added option for respondents in the 2019 survey

5%

3%

16%

0%

10%

18%

20%

Preventive care (e.g. Health checks, physicals, flu shots, vaccinations)

Mothers room*

Smoking cessation program

Adding office plants

Working at home options

Flexible working hours

Subsidized fitness plans (e.g. gym membership)


LANDLORDS’ VIEW –OPERATIONAL STRATEGY & WELLNESS

Providing amenities and better leasing experience• Portfolio landlords are willing to provide

additional amenities in new developments to attract anchor tenants

• Landlords have become more willing to provide flexible workspace or to lease to flexible workspace operators in their buildings given the stronger demand from occupiers for this service

• Landlords are exploring technology advancement in online applications to improve communication with tenants and allow occupiers to have better access to building information

New initiatives to improve air quality • Some landlords are establishing online

systems to ensure tenants receive real-

time information about the air-quality of the building

• While occupiers rank air quality as the most critical wellness consideration, some landlords are fully aware of this and have reacted by having introduced regular cleaning of the air duct

Increasing commitment by landlords to green and healthy buildings• New green buildings - those obtaining

Beam Plus Platinum Rating and LEED certification

• The WELL Building Standard – building design, greenery area, tenant mix under the retail podium

• A balance between costs and wellness –high construction costs remain the limitation to promotion of wellness.

About Colliers International Group Inc.Colliers International (NASDAQ, TSX: CIGI) is a leading global real estate services and investment management company. With operations in 68 countries, our14,000 enterprising people work collaboratively to provideexpert advice and services to maximize the value of property for real estate occupiers, owners and investors. For more than 20 years, our experienced leadership team, owning more than 40% of our equity, havedelivered industry-leading investment returns for shareholders. In 2018, corporate revenues were $2.8 billion ($3.3 billion including affiliates), with more than $26 billion of assets under management.For the latest news from Colliers, visit our website or follow us on

Copyright © 2019 Colliers InternationalThe information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for anyinaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Primary Author:

Rosanna TangHead of Research | Hong Kong and Southern China+852 2822 [email protected]

Zac TangManager | Research | Hong Kong+852 2822 [email protected]

For further information, please contact:

Nigel SmithManaging Director | Hong Kong+852 2822 [email protected]

Fiona NganHead of Office Services | Hong Kong+852 2822 [email protected]

Truddy CheungHead of Workplace Solutions | Asia+852 2822 [email protected]

http://www.colliers.com/

http://www.colliers.com/en-gb/asia

https://www.linkedin.com/company/colliers-international/

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