Off-Market Office Cost Arbitrage
JAN 2022 | LAST UPDATED
Real estate is one of the single largest cost in running a business. Yet the most attractive real estate opportunities are often short-lived, difficult to source, analyse and execute. So where can tenants look to gain a real advantage? In this guide, we share details of cost arbitrage, generated from off-market opportunities.
WHAT IS OFF-MARKET?
Off-market opportunities and “shadow” space provide more market fluidity by allowing tenants to monitor opportunities that may be coming available within the transaction window which would not show up on any standard vacancy listing. The breadth of options facilitate demand and supply, whilst minimising bidding wars in tight markets through private match making.
HOW DOES IT WORK?
Whilst the land registry system in Hong Kong is well-developed and accessible to the public, transaction records and lease expiry are generally available for only large occupiers with long leases, as 3 year leases do not need to be registered. Since the majority of small to medium size occupiers sign 3 year leases, a comprehensive tracking of tenant’s movements is key.
Tenants can access off-market opportunities through SAVVI’s proprietary network.
In the summary below, we’ve established the structure and key off-market opportunities that suits different occupier needs and preferences.
Upcoming Lease Expiry / Renewal
For landlords there are significant economic differences between a renewal transaction and a new lease. Understanding the price differentials and off-market activity will provide real advantages for tenants on renewal negotiations.
Find out more at: Considering an Office Relocation?
Businesses spend much of their time finding the right space for a growing workforce, however, at some point, many companies will need to shed some square footage. Through off-market listings and private access to occupier demand, Tenants can structure an early lease surrender that is a win-win for all parties.
Find out more at: Office Lease Surrender Guide.
Dispositions typically entail the leasing, sale or sale-leaseback of surplus corporate real estate, due to changes in corporate strategy, mergers and acquisition activity, or economic trends.
Hong Kong’s Grade A Central CBD office market totals approximately 20 million sq ft of which only 6% is vacant. Off-market / shadow stock provides tenants access and leverage to upcoming and fitted spaces that can generate massive savings together with a much broader market for cost arbitrage.
OFF-MARKET OFFICE | HONG KONG
The Hong Kong office market continues to be one of the world’s most expensive market, around 60% costlier than the next two markets (New York - Midtown and London - West End).
Indeed, with the ongoing COVID-19 and national security law, office rentals are beginning to price in the market sentiments, and for occupiers who are within a suitable transaction window, can yield real dividends.
With no foreseeable significant office supply in this landlord’s market, tenants can still secure an advantage when provided with access to off-market opportunities that can generate massive potential savings.
In the first half of 2020 alone, there has been a three-fold increase in off-market and surrender stock compared to the whole of 2019 (SCMP).
The Central district has the largest rental spread in the Hong Kong market ranging from the highly specified Grade AAA offices to more modest Grade A buildings in the core and fringe areas with standard technical specifications. Learn more about the Central district here →
Grade AAA - HK$125-138 PSF
Grade AA - HK$105-138 PSF
Grade A - HK$50-128 PSF
Shanghai Commercial Bank Tower →
Sheung Wan and Admiralty lies directly adjacent to Central on either side. With a few exceptions, a large number of strata-titled office towers are clustered in these districts. Being strata-titled in nature, these towers are heavily discounted from the portfolio landlord owned commercial developments. Learn more about the fringe Central district here →
Grade AA - HK$128 PSF
Grade A - HK$40-80 PSF
WAN CHAI | CAUSEWAY BAY
Wan Chai provides more economical accommodation than Central with Grade A offices. The majority of office towers in Wan Chai are strata-titled.
Causeway Bay has historically been a popular business district to house the office space of multinational retail firms.
Learn more about the Wan Chai & Causeway Bay district here →
GRADE AA - HK$80 PSF
Grade A - HK$40-80 PSF
China Online Centre
Great Eagle Centre
Sun Hung Kai Centre
World Trade Centre
HONG KONG EAST (NORTH POINT, QUARRY BAY & TAI KOO)
This district boasts quality, cost effective accommodation for larger occupiers, in a modern office cluster. Learn more about the Hong Kong East district here →
Grade AA - HK$65-75 PSF
Grade A - HK$30-60 PSF
Island Place Tower