Further bolstering Hong Kong's competitive advantage in the eyes of MNCs are its skilled workforce, low taxes, infrastructure, rule of law and an unrivalled location on the southern Chinese mainland, Mr Ma said.

A combination of factors and an increase in new supply has put the tenant in the driver's seat when it comes to negotiating leases. Mr Ma said Grade A office space in Hong Kong cost an average of HK$15.47 (US$1.98) per square foot in June - 52 per cent cheaper than in January 2001.

Even with the global economic slowdown and rationalisation of the IT and telecommunications sectors, Hong Kong's prime commercial centre has held its own. Mr Ma notes that the marginal increase in vacancy rates - from 8.2 per cent at the end of 2000 to 10.4 per cent by the end of 2002 - can be attributed in part to office occupiers disposing of excess space.
 
Incentives favour tenants

During this period new supply was relatively low, totaling "under 0.5 million square feet net" in traditional office districts. Thus, rents experienced continued downward pressure as landlords became increasingly flexible with tenants during lease negotiations, lowering rents and offering longer rent-free months.

"As rents have fallen by 52 per cent since the beginning of 2001, this means that Grade A buildings in prime office districts in Hong Kong can be leased for less than similar buildings in Singapore and Shanghai when compared on a net effective basis. In fact, rents for prime buildings in Core Central averaged HK$18.47 or US$2.36 per square foot a month in June, which is lower than (rents) for prime districts in Singapore such as Raffles Place (at HK$20.25 or US$2.59 per square foot a month) and Central Puxi in Shanghai (HK$27.30 or US$3.50 per square foot a month)," Mr Ma says.

In addition to the competitive office rents, Hong Kong has added strengths as a regional commercial centre, he points out.

"Hong Kong has a highly educated and skilled workforce, largely serving in the banking and finance, legal, accounting, trade and business services industries." It has the lowest taxes is the region (and among the lowest in the world), along with an ideal location.

Ideal location

"Hong Kong is situated at the mouth of the Pearl River Delta and close to both Shenzhen and Guangzhou in the Chinese mainland. These two cities can easily be accessed via a high speed train or ferries from Hong Kong, and most countries in the region can be reached by plane in under five hours," Mr Ma said.

"As a financial centre and trading hub, Hong Kong also has highly-developed infrastructure. This includes an extensive road/highway network, above and underground railway system, international airport, ferry system, deep water port and excellent telecommunications."

Related link:
Knight Frank www.knightfrank.com.hk