Hong Kong fit-out costs expected to fall to pre-pandemic levels when China border reopens, Cushman says

·4-min read

The average cost of developing offices in Hong Kong will return to pre-pandemic levels when borders with mainland China are reopened, allowing for the smooth transport of building materials, industry experts said.

Hong Kong is the world’s fifth most costly city for office development, with three Japanese hubs – Tokyo, Osaka and Nagoya – taking the top spots, according to a report published by Cushman and Wakefield on Tuesday.

Fit-out costs in Hong Kong, or the cost of developing interior spaces into offices, have surpassed those in Shenzhen, Beijing, Guangzhou and Shanghai by up to 20 per cent, it said. At US$138 per sq ft, the financial centre was four positions up from last year, and was marginally outstripped by Auckland’s US$139 per sq ft.

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The consultancy’s evaluation considers the cost of furniture, IT equipment, security devices, as well as mechanical and electrical systems, which are usually paid for by the tenant.

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Projects in Hong Kong have endured higher costs during the Covid-19 pandemic, because of disruptions with deliveries of building materials from the mainland, according to Bryant Cheung, senior director at Cushman.

“The delivery of non-essential supplies was suspended between January and March, including building materials, which has increased logistical costs,” Cheung said, adding that some resources from neighbouring Shenzhen were transported by sea due to restrictions on land links.

However, the rise in cost was temporary and will improve as border restrictions are eased. “When the borders are reopened, allowing for the smooth transport of supplies, additional costs will fall,” he said.

In a report JLL released in December, Hong Kong was named the most expensive Chinese city for office development, outranked only by Tokyo, Auckland and six Australian hubs, including Brisbane and Canberra.

Regardless of the pandemic, fit-out costs in Hong Kong will always be higher than those on the mainland, said Ryan Wong, head of project and development services at JLL Hong Kong.

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“Hong Kong’s supplier of building materials is mainland China, so there will always be added costs for [local projects], such as taxes and logistics,” he said, adding that wages were also higher in the special administrative region.

To prepare for a looming building boom, the government in February announced a HK$1 billion (US$447.3 million) training and recruitment plan, through which around 27,000 workers will be trained for the construction sector.

Higher fit-out costs can also be attributed to the market’s rising interest in flexible workspaces, which may be more expensive to build, according to Admen Law, senior director at CBRE Hong Kong, who estimated that fit-out costs had increased by 3 to 5 per cent during the pandemic.

Covid-19 looms large over Hong Kong’s office market amid work-from-home

“The trend emerged around five years ago, and was accelerated by the pandemic,” Law said. “Companies saw the benefits of having a flexible working environment, such as saving on rental expenses and reducing office footprint.”

“Office footprint” measures the number of steps a staff member will have to take between areas. A lesser footprint indicates a more open, flexible and accessible space, which is usually without barriers such as cubicles and private rooms. Without walls and doors, companies may rent smaller spaces, but the facilities and technology required by open offices may be higher.

“Due to social-distancing measures and remote working arrangements, companies will now have to make these changes,” Law said. “The demand [for flexible offices] is rising fast.”

The Asia-Pacific region has remained resilient throughout the pandemic, and will continue to rebound, the Cushman report said. “A fuller return to the office is expected to strengthen in 2022, as higher vaccination rates allow economies to open more fully, which … should drive office demand over the year ahead.”

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