Hong Kong's small businesses consider backup offices in Kowloon as they look to relocate from protest hotspots

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/business/article/3040276/hong-kongs-small-businesses-consider-backup-offices-kowloon-they-look?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | December 4, 2019 1:45 PM SGT
Small and medium-sized enterprises are actively looking for backup offices in Kowloon as a contingency plan to minimise the impact on their day to day operations as the protests over the past six months make commuting difficult because of frequent transport disruption.
Patrick Mak, head of Kowloon office services at Knight Frank, said that as office goers were finding it increasingly difficult to get to work because of constant disruptions to the transport network, companies were forced to look for backup offices.
Protesters have vandalised MTR stations, set roadblocks and set the tollbooths of the Cross-Harbour Tunnel on fire, making commuting a nightmare as the protests have turned increasingly violent in the past few months.
"[Earlier] it used to be only big companies but now some SMEs have also started," Mak said.
Office goers in Tsim Sha Tsui district of Hong Kong. Photo: AFP alt=Office goers in Tsim Sha Tsui district of Hong Kong. Photo: AFP
He said that companies with offices near MTR stations and police stations that have borne the brunt of the protesters' ire were particularly looking to move to Kowloon, adding that the company has made a map showing areas that have not been affected too much by the protests.
Relatively cheap offices in Cheung Sha Wan, Kowloon Bay and Shek Mun were most likely to benefit from the trend, he said.
Wendy Lau, senior director for Hong Kong office services at Knight Frank, said that banks in the past that were not very serious about disaster recovery centres, have become more serious to maintain a continuity in operations.
"It has never been like this, so they [banks] thought it was not important," Lau said. "But this time it is different as people really cannot go to work. I think this will become a trend. A lot of clients have asked about it. "
Knight Frank's Mak estimates that companies in Kowloon were on average downsizing operations by 15 to 25 per cent because of the downbeat economic conditions, but it was lower than on Hong Kong Island where rents are much higher.
"Across Hong Kong, the volume and size of transactions have fallen as demand has shrunk. Some tenants are relocating to smaller or cheaper office space," Mak said, adding that he expected office rents in Mong Kok, which has seen some of the worst violence, to fall between 5 and 6 per cent next year.
The sentiment is echoed by Kelvin Hui, senior district sales director at Centaline Commercial.
"The recent months of social struggle in Hong Kong has taken a heavy toll on Kowloon's offices, with a continuously rising trend in vacancy rate in numerous districts," said Hui. "The overall vacancy rate of offices will continue to climb in short term."
The situation was much more severe on Hong Kong Island as companies across a range of sectors were downsizing because of the impact of the protests and the US-China trade war.
The unrest, which has weighed heavily on the retail and tourism sectors, sent the city's economy into a "technical recession" in the third quarter. On Monday, Financial Secretary Paul Chan Mo-po said the city's economy was expected to contract by 1.3 per cent for the full year.
As companies re-evaluate their office space needs, landlords were likely to cut rents in the new year.
Rents in Central are likely to see decline of 8 to 10 per cent next year, said Lau, much higher than her previous estimates of 5 to 6 per cent.
"One mid-size bank is cutting [headcount] by half from 8,000 to 4,000, while some are relocating staff elsewhere and another is considering moving the entire trading [team] to Tokyo," Lau said.
Leasing transactions meanwhile have slowed down to a trickle.
According to Centaline, only a few leases have been struck at the Bank of America Tower in Admiralty since the protests started in June. A 3,100 sq ft space in the building is currently being advertised at HK$52 per sq ft, 46.4 per cent lower than in May.
Similarly, at The Center in Sheung Wan, 13 units ranging from 1,832 sq ft to 2,828 sq ft was being offered at HK$70 per sq ft, 30 per cent lower from a few months ago because of the "weak investment sentiment", according to Midland IC&I.
Mark Chan, director of the office department at Centaline, said that the overall office leasing environment has been gradually trending down since July as businesses feel the impact of the US-China trade war and unrest.
In Causeway Bay, vacancy rate of grade A offices climbed to 7.2 per cent in October, the highest since March 2010, according to Centaline.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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