25 October 2016
The 118-storey International Commerce Centre towers above the Kowloon skyline. The building is home to many global financial firms that relocated from Hong Kong Island. Photo: HK Govt
The 118-storey International Commerce Centre towers above the Kowloon skyline. The building is home to many global financial firms that relocated from Hong Kong Island. Photo: HK Govt

Chinese firms march into Central as foreign banks move out

Next time you tell a cabbie to take you to Citibank Tower in Hong Kong Island, don’t be surprised if you are greeted with a perplexed look.

It is because the 51-storey commercial building that you had been familiar with in the Admiralty area will no longer carry the name of the US banking giant or its famous logo.

Citibank is moving much of its Hong Kong operation across the harbor to east Kowloon, reducing its rental space in the Admiralty tower by almost a third to 152,000 square feet (sqf).

As the American group will cease to be the largest tenant, the building will be renamed Champion Tower (冠君大廈), taking on the identity of Great Eagle Holdings’ REIT which owns the property.

Apart from moving some key departments out of the Central district, Citigroup is also shifting a back office operation out of Hong Kong Island.

The back office, which was housed in a 140,000 sqf facility in the One Island East skyscraper in Taikoo, will move to much larger premises at the bank’s new city headquarters in Kwun Tong.

In 2014, the US financial group inked a HK$5.4 billion deal for One Bay East tower, a 21-storey structure that is part of a development by Wheelock Properties in Kwun Tong.

Now, the bank is preparing to shift to its new offices, a move that is expected to yield significant cost savings.

Citibank’s relocation is not a standalone case.

In recent years, several businesses have opted to move out of Hong Kong Island due to soaring rentals, particularly in the Central district.

Mizuho Bank, Japan’s second largest lender, for instance, has announced that it will move some departments out of Central and Admiralty to a new Tsim Sha Tsui location.

The bank has struck a deal with New World Development to lease 165,000 sqf of office space and become the largest tenant at the New World Centre redevelopment project on the TST waterfront.

In another case, Bank of America Merrill Lynch has moved some of its business departments to Kowloon Commerce Centre in Kwai Chung. Its new neighbors will include Wells Fargo.

The “decentralization” moves by foreign institutions have become quite noticeable in the recent past.

The trend picked up after the 118-storey International Commerce Centre opened its doors in west Kowloon, welcoming tenants such as Morgan Stanley, Credit Suisse, Deutsche Bank and ABN AMRO.

The global financial firms were lured with ultra-long contracts of up to ten years and unit rents as low as HK$30-50 per sqf, just a fraction of the level in Central.

As the firms relocated, the space they left behind has been taken up mostly by cash-rich Chinese companies.  

Mainland enterprises or China-invested firms now occupy some 40 percent of the office space in Central.

In 2012, Agricultural Bank of China splurged HK$4.88 billion, in one-off payment, for an entire block in Central, aiming to use it as its overseas headquarters.

In the same year China Construction Bank inaugurated its own headquarters building in Central, on the former site of the Ritz-Carlton hotel.

Amid the tidal wave of relocations, landlords in Central would have panicked had it not been for an expansion spree by Chinese banks.

It is worth noting that despite the relocations by global firms, the vacancy rate in office space in Central is still at an ultra-low 3 percent.

There has been a 52 percent increase in Chinese companies in Hong Kong over the past decade. Mainland firms accounted for almost 40 percent of the new lettings of trophy assets in Central last year, according to realty consultancy firm JLL. 

Private firms north of the border are even bolder than state enterprises.

Guangzhou-based home developer Evergrande surprised the market in November with an eye-popping HK$12.5 billion purchase of MassMutual Tower in Wan Chai.

In another deal, the Everbright conglomerate bought Dah Sing Financial Centre in the same district for HK$10 billion this February.

Chinese companies see many benefits in securing a prime office address.

A high-profile location will help the firms gain more recognition and promote their brand. Investing in prime Hong Kong property is also seen as good business, given the constantly surging asset prices in the city.

Going forward, we can expect more big-ticket property deals by Chinese firms. 

Some real estate agents are speculating, among other things, about a potential transaction related to The Centre, a 79-storey building owned by Cheung Kong.

There are rumors that the property, Hong Kong’s fifth tallest skyscraper, could be put up for sale for around HK$30 billion. 

Though Cheung Kong, which is controlled by billionaire Li Ka-shing, has denied that it plans to explore a sale, the market speculation hasn’t abated.

This is not surprising given the flurry of commercial real estate transactions in the city recently.

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