Recenteringof Asian office hubs: Points of attention for ...€¦ · Commercial space: 300,000 sq...

Recentering of Asian office hubs: Points of attention for Hong Kong

Hong Kong Institute of Surveyors 2011 Annual Conference

Andrew NessExecutive DirectorCBRE ResearchAsia

Agenda

1. Rise of Asian regional prime office markets

2. Government’s role in the recentering process

3. Basic approaches to re-centering the CBD

4. Factors determining outcome of re-centering efforts

CB Richard Ellis | Page 2

5. Hong Kong office development cycle falling behind

6. Short-term constraints and opportunities

7. Points of attention for Hong Kong


Rise of Asia’s prime office markets

Rise of Asian economies over past two decades

Real GDP % change per annum

0

2

4

6

8


Source: IHS Global Insight

-6

-4

-2

0

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

World United States Western Europe Asia

4

5

6

7

8

2011F

2012F

2013F

Strong growth in financial and business services employment

Strong employment growth will continue to fuel dema nd for office space


0

1

2

3

Singapore Beijing Hong Kong Shanghai Mumbai Toyko

Source : Oxford Economics (Updated on June 2011)

Note: (1) Tertiary industry employment growth for Shanghai, Beijing and Mumbai

2,500

3,000

3,500

4,000

4,500

5,0002005-2007

2008-2010

1H 2011

Recent growth in Asian demand for prime office space very robust

Net Abso

rptio

n (‘000

Net Abso

rptio

n (‘000

Net Abso

rptio

n (‘000

Net Abso

rptio

n (‘000 sfsf sfsf)) ))


0

500

1,000

1,500

2,000

Beijing Shanghai New Delhi Singapore Hong Kong Tokyo

Source : CBRE Research

Note: (1) 2005 – 2007 and 2008 – 2010 figures are the average net absorption in the period

Net Abso

rptio

n (‘000

Net Abso

rptio

n (‘000

Net Abso

rptio

n (‘000

Net Abso

rptio

n (‘000


Government’s role in recentering process

ThaneThaneThaneThane

4. Navi

Mumbai

PBDPBDPBDPBD

Western Suburbs

Malad, Goregaon,

Powai

� Fashionable in present age to regard government intervention with suspicion

� Nevertheless not only direct government intervention but also long-term planning vision is indispensable to guide urban change process

� Creation of new/alternate commercial sub-centers invariably demands major infrastructure improvements which are

MMDA’s plan for creation of a CBD, EBD, ABD and PBD in Mumbai

•), Government is indispensable in the CBD recentering process


N

Airport

Central

Mumbai

Vashi, Kharghar,

CBD Belapur

1. CBD 1. CBD 1. CBD 1. CBD ––––

Nariman PointNariman PointNariman PointNariman Point

3. ABD3. ABD3. ABD3. ABD

South Mumbai

2. EBD2. EBD2. EBD2. EBD

Kurla, Vikhroli,

Kanjummarg

infrastructure improvements which are beyond capacity of private sector to manage

� At same time, importance of market forces in ensuring the viability of the outcome of the process should not be minimized

� Government’s future vision of a multi-nodal city is necessary but not sufficient reason for implementing CBD re-centering, which proceed as public-private partnership in order to ensure success

1 Central Business District (CBD)2 Extended Business District

(EBD)3 Alternate Business District

(ABD)4 Navi Mumbai

But governments also face constraints in their leeway for action

Hanoi Beijing


� The Asian cities surveyed comprised a wide variety of different underlying economies, different urban development histories, different urban landscapes

� Cities in Asia consequently have vastly differing agendas regarding requirements for protecting the natural landscape, preserving the inner city heritage and preventing inner city congestion

� Cities surveyed host differing population densities, in both core and peripheral areas, and have differing levels of corporate and government office agglomeration in existing business districts

� Varying levels of government authority drive regeneration, with differing limits of fiscal and administrative authority over the urban regeneration process and development of key infrastructure


Basic approaches to recentering the CBD

Expand/upgrade existing hub Creation of new inner city hubs Create suburban satellite office hub

Greater China� Beijing CBD East Expansion &

Financial Street West

Expansion

Singapore

� Singapore Marina Bay

Greater China� Shanghai Lujiazui CBD

� Shenzhen Futian CBD

� Taipei Xinyi New Area

� Hong Kong

Japan� Tokyo Toyosu

India

India�New Delhi Gurgaon

Vietnam�Hanoi Western sub-market

The three basic strategies for recentering Asian office hubs


India� New Delhi Noida

� Mumbai Bandra Kuala Complex &

Worli

� Bangalore Electronic City & Outer

Ring Road

Philippines� Manila Bonifacio Global City &

Ortigas

Hong Kong� Kwun Tong and Kowloon Bay

� Kowloon Kai Tak site

Source: CBRE Research


Factors determining outcome of recentering efforts

Optimum when no resistance to creating alternate/extension site

� Cities which have experienced greatest success in creating new downtown hubs are those in which creation of

Land Reclamation 1984

CB Richard Ellis | Page 13Source: URA, CBRE Research

hubs are those in which creation of sitesfor developing new commercial sub-centers has proceeded unopposed

� In Singapore, the Foreshores Act gives the Singapore Government full authority to reclaim any part of the foreshore, subject to the approval of parliament and served as the basis for reclamation of two sites, totaling 85 hectares, providing foundation for Marina Bay New Area which was done in1969-1992

Greenfield suburban sites for satellite hubs: opportunities and pitfalls

2003: DLF Cyber city was an emerging growth hub

2011: DLF Cyber city has reached its full

Commercial space: 300,000 sq ft


reached its full development potential

Commercial space: 12 million sq ft

� Municipal Corporation of Delhi act of 1957 prohibited any large scale private re-development activity in New Delhi, and this compelled more fast moving elements in private sector to devise a solution when city experienced massive growth in employment upon India’s entering the age of the “new economy”

� Despite boost which Gurgaon provided to Delhi’s IT and ITES sector, legacy of the fact that it was initially entirely private sector driven is that its supporting infrastructure is still inadequate


Having underutilized inner city sites is strongly favorable condition

� New inner city hubs in which development has proceeded most smoothly have been those in which assembly of underutilized sites in inner urban areas

� Where sites have been easy to assemble, this has permitted urban development authorities to plan regeneration from scratch, providing greater leeway to guiding mix of enduses ultimately contained within the new district

Shanghai, Lujiazui

1990


contained within the new district

� From this perspective, Shanghai PudongLujiazui, Shenzhen Futian, Mumbai BandraKurla Complex, Bangalore Whitefield, ORR and Electronics City Taipei Xinyi, Tokyo Koto Ku and Shenzhen Futian all provided great “blank slates” for the creation of new commercial sub-centers within the existing inner city

2010


Pud

ong

Ave

nue

1

2

Waigaoqiao

Little Lujiazui CBD

Line 10

Line 3

Line 1

Pudong Infrastructures DevelopmentMetro Lines

Line 2 (2000)

Line 4 (2007)

Line 6 (2007)*

Line 7 (2009)

Line 8 Ph. 2 (2009)

Line 9 Ph. 2 (2009)

Line 13 - Expo Line (2010)

Airports

Pudong Int’l Airports

(1999 Ph.1/ 2008 Ph. 2)

Ports

Waigaoqiao Port

Tunnels

1 Xiangyin Rd. Tunnel (2005)

2 Jungong Rd. Tunnel (2011)

3 Dalian Rd. Tunnel (2003)

4 Xinjian Rd. Tunnel (2009)

5 Yan’an Rd. (E.) Tunnel (1985)

6 Renmin Rd. Tunnel (2009)

7 Fuxing Rd. (E.) Tunnel (2004)

8 Xizang (S.) Rd. Tunnel (2011)

9 Dapu Rd. Tunnel (1971)

10 Dapu Rd. Tunnel Ph. 2 (2010)

11 Longyao Rd. Tunnel (2010)

12 Shangzhong Rd. Tunnel (2009)

Bridges

1 Yangpu Bridge (1993)

2 Nanpu Bridge (1991)

3 Lupu Bridge (2003)

4 Xupu Bridge (1997)

Elevated Ring Roads

Inner-Ring Road (1994 - 2009)

Mid-Ring Road (2006 - )

Meg-Lev (2002)

� Unfair to expect Hong Kong to directly “learn from Shanghai” with respect to the way it solved the problem of Lujiazui’s lack of connectivity to core inner city areas, because of difference in ownership and operation of key

Connectivity to core central city crucial for viability of new hub


64

7678

137

611

8

Longyang Rd.

6

7

34

5

8

9

11

10

12

1

2

3

4

Zhangjiang

Jinqiao

Jinqiao SouthM2

46 92


operation of key transport infrastructure

� Still Hong Kong would do well to note that Shanghai has spent RMB 180 billion over the past 21 years to improve connectivity in the form of 12 tunnels, 4 bridges and 7 new Pudongmetro lines

Many business hubs still struggling to enhance internal connectivity

� Some of the more technically sophisticated cities in Asia have made major strides in improving the internal connectedness within their newly generated office hub areas

� Generally, however, this is an area which many of new business hubs our report covered are trying to rectify or are still

Taipei, Xinyi Planned New Area Skybridge System


covered are trying to rectify or are still struggling with

� Ease of communication between commercial buildings and related public transportation impacts not only on convenience of office occupation but also on success of retailing and leisure facilities

� Problem may extend to basic transportation planning, when new hubs are designed without sufficient consideration to pedestrian/vehicular interface


Attempts to improve already mature areas do not always work

� Beijing CBD has put forward detailed plans to connect most major building groups in the greater Jianguomenwai area via a system of pedestrian tunnels, and Finance Street has similarly announced plans to build 2.3 kilometer tunnel system to improve connectivity

� Progress has been slow due to reluctance of district governments to shoulder portion of the high cost of tunnel development and

Beijing


the high cost of tunnel development and also to the negative example of Zhongguancun where a recently completed tunnel system serving 14 buildings has been plagued by operational issues


� Lack of easy pedestrian connections between major groups of existing commercial buildings is a problem not only in Beijing’s CBD and Finance Street but also in Shanghai’s Lujiazui CBD as well

Special zoning of development sites can be used to target occupiers

� Singapore, fully leveraging on the “tabula rasa” presented by its reclaimed Marina Bay new growth area, has been sensitive to the kinds of specifications which major transnational financial corporations and other MNC locators bring to their search for suitable regional headquarters

� In the Marina Bay master plan , URA deliberately laid out in a grid like pattern

Singapore, Marina Bay White Zoning Area


deliberately laid out in a grid like pattern which created a flexible framework within which land parcels can be easily combined and sub-divided

� Intention was to provide incoming developers with sufficient space and flexibility to develop Grade A office towers with large, square floor plates, thereby catering directly to the typical office space configuration requirements of large financial institutions

129ha White Zone AreaEst. office space: 2.82 million sm

Marina Bay new growth area

Source: URA

Iconic buildings : deployed successfully can strengthen branding

CCTV Tower, Beijing 101 Tower, Taipei


� Both CBDs which are trying to re-position themselves as well as newly emerged alternate areas need to improve their visibility in order to enhance their attractiveness by creating a strong sense of identity

� After effectively using CWTC to anchor the emerging CBD area in Beijing, it has used the CCTV Tower to spectacular, brand building effect

� Similarly, completion of Taipei 101 in 2004 clearly established Xinyi New Area not only as city’s dominant office hub but also as a leading commercial precinct

� Where hubs have no iconic buildings, this is largely because of imposition of height restrictions and not from any fear of making moves to raise their public profile


To succeed new hubs must position themselves as vib rant, desirable places


� In cities which have several new alternate business hubs targeting similar occupiers, they must find a point of difference to distinguish themselves

� With its iconic new Marina Bay Sands resort, and its broad mix of office, retail, hotel, recreational and residential end uses, promotion for the Marina Bay “New Downtown” concept stresses constantly that the new business and commercial precinct is an exciting, desirable place to be

Relocation of government functions can also draw business occupiers

Luohu

Futian CBD

Shenzhen Stock Exchange Relocation


� Decision to relocate a number of key government offices or other important municipal functions to a new commercial sub-district can mark a major point of inflection, signaling the emergence of a new “command and control” center within the city

� Taipei Xinyi New Area successfully leveraged on relocation of the Taipei City Council and Taipei Municipal Government to signal government’s intention to establish the area as the city’s new financial and administrative center

� Shenzhen’s decision to relocate stock exchange to new Shenzhen Stock Exchange Building in Futianwill enhance the new hub’s position as unchallenged center of financial industry in the SEZ


Incentives for occupiers can give rise to unintended competition

Policy Incentives for promoting development of Beijing CBD

Incentives for promotingdevelopment of Beijing Finance Street

Requirement Financial enterprises, which arenewly established as of February1st, 2005 or newly moved into,will be provided with one-offsubsidies.

The headquarters of national financialinstitutions, international financialorganizations and regional (aboveprovincial level) branches of domesticand foreign financial institutions thatbuy (rent) offices in Beijing FinancialStreet shall be granted a one-timesubsidy for the purpose.

RMB10 million subsidies will beprovided to enterprises with aregistered capital of more thanRMB1 billion (including RMB1billion);

RMB8 million subsidies will beprovided to enterprises with aregistered capital of more thanRMB500 million (includingRMB500 million) and less thanRMB1 billion;

RMB5 million subsidies will beprovided to enterprises with aregistered capital of more thanRMB100 million (including


RMB100 million (includingRMB100 million) and less thanRMB500 million.

Office purchasing subsidies Financial Enterprises could enjoyoffice-purchasing subsidies orrental subsidies. For those whopurchase self-used real estate foroffices, one-off subsidies will becalculated according to the actualacreage of self-used real estatefor offices, and the standard ofsubsidies will be RMB1,000 persquare meter.

The companies that buy offices shallget a subsidy of RMB1,000 /squaremeter. Those renting offices shall geta one-time subsidy in light of theircontributions to the economicdevelopment of the district.

Rental Subsidies For those who rent the housesfor offices, three-year rentsubsidies will be offered, and thestandard of subsidies will beRMB200 per square meter peryear.

International financial institutions shallbe encouraged to pre-rent offices inthe international financial businessarea. Those who pre-rent or first rentoffices there shall enjoy rent cut, andthe period of preferential treatmentenjoyment shall be three years.

Starting from the date of rentcontract, the rent they pay for thefirst, second and third year shall be50%, 70% and 90%, respectively.

� Providing incentives to motivate occupiers to relocate to specific sub-centers is a practice which is associated with developing economies which are still nurturing emerging financial sectors

� It is in such still new financial districts of emerging Asia that local development authorities are most keen to build the necessary critical mass of occupiers, but this practice can also give rise to unintended forms of competition between similar hubs


Bangalore and Singapore : different styles of incentivizing developers

� In Bangalore’s Whitefield and Electronics City new commercial sub-districts, emphasis is not on attracting would-be occupiers, of which the city has no lack

� Emphasis is on attracting developers willing to develop high quality office buildings on spec in new, not entirely proven areas

� Main incentive is provision of fully serviced sites at same cost as raw landWhitefield, Bangalore


sites at same cost as raw land

� In Singapore, while there are no direct incentives offered to occupiers, urban development authorities may provide indirect incentives to developers, to make involvement in large, capital intensive projects more appealing

� One incentive which the Singaporean government has offered to developers of large-multi-phase sites in Marina Bay is flexibility with respect to timing of development roll-out, easing project risk

Whitefield, Bangalore

MBFC, Singapore


Hong Kong office development cycle falling behind other Asian centres

Comparision of Asian cities’ future office development pipeline

20

40

60

80

100

120

Perce

ntage of stock

(%)

Development pipeline to end 2012

Vacancy Rate Q2 11


0

Hanoi

Mumb

ai

New D

elhi

Bangalo

re

Shenzhen

Shanghai

Tokyo

Beijin

g

Taipei

Singapore

Hong Ko

ng

� Balance between future supply and historical net absorption levels in Hong Kong does not appear too badly out of kilter

� Hong Kong numbers mask the fact that virtually all of the office properties coming on stream on Hong Kong Island in 2011-2012 are small floor plate buildings, and conditions in Kowloon Bay and KwunTong are still not mature enough to support emergence of a new financial district

� Other major centers in Asia which are similarly witnessing fairly robust growth in financial and producer services industry are poised to see completion of sizeable quantum of prime office facilities



Short term constraints and opportunities

� Conversion of Kwun Tong and Kowloon Bay into major new commercial hubs will continue to be private sector led for the foreseeable future

� Means that government initiated attempts to convert these places into vibrant commercial hubs has to be incremental

� Government can only adopt some improvements “after the fact,” which cannot quickly alter the character of these former industrial precincts

Hong Kong’s older industrial areas: must be transformed gradually

Kwun Tong


character of these former industrial precincts

� Kowloon Bay started undergoing its transformation slightly earlier than Kwun Tong, starting in 1992 with Kerry’s completion of Enterprise Square , following which a total of 13 modern grade A office buildings have been completed by a number of developers

� Kwun Tong commenced transformation 1998 when Sun Hung Kai Properties completed the Millennium City 1, 1, 1, 1, which has been followed by regeneration of a further 11 buildings

Kowloon Bay

No overarching solution to Hong Kong Island prime office shortage

� Further expansion prime office hubs on Hong Kong island is longer aligned with the S.A.R.’s future main developmental direction as future opportunities are all one-off : re-development of government’s West Wing Office Block and Inland Revenue and Immigration towers, partial re-development of Swire’s Tai Koo Shing portfolio

� Hong Kong is experiencing considerable difficulty in re-centering its present hierarchy of office hubs away from its present structure, which remains heavily focused on Central District as being the most desirable and prestigious office location


� A major opportunity to make a powerful statement about the growing centrality of Kowloon East was lost when it was decided to remove key S.A.R government functions to Tamar site

� Public consultation process in Hong Kong is not well managed and frequently results in lengthy wrangling, which has caused some much needed projects being blocked by the forces of inertia and fear of change

“Hong Kong is not (just) an Island”

KAI TAK

2011E 2012E

-483, B & C Castle

Peak Road

-WKK Building

-133 Hoi Bun Rd 39

-18 Kowloon East

----KCC KCC KCC KCC Phase Phase Phase Phase 2222

-24 Hing Yip St

-49 King Yip St

CBD and its CBD and its CBD and its CBD and its peripheralsperipheralsperipheralsperipherals

Key Key Key Key decentraliseddecentraliseddecentraliseddecentralisedareas areas areas areas

Potential prime Potential prime Potential prime Potential prime office clustersoffice clustersoffice clustersoffice clusters

New Supply


-50 Connaught Road Central

-31 Queen's Rd Central

-39 Queen's Rd Central

-49 King Yip St

-3 Connaught Rd -28 Hennessy Road

-Hysan Place

Kai Tak site is last precious “blank canvas” available in central city


� The 320 hectare Kai Tak site is Hong Kong’s last major vacant core downtown development opportunity and as such is very precious

� Easier to plan development of a vibrant and attractive commercial district when working from scratch than when attempting to infill development into an existing district originally planned for a non-commercial enduse

� Kai Tak site, if properly master planned represents a real opportunity to implement good urban design practice


Points of attention for Hong Kong

Hong Kong’s constraints and opportunities

� Hong Kong still has some opportunities to re-center its office market but it is also facing some tough constraints

� S.A.R. could do a better job than it has, up to the present, with respect to the “psychological re-centering” of its business districts

� Has not made effective use of development of iconic buildings and relocation of government

� Major short-term solution is to further speed conversion of some existing government buildings as well as older industrial buildings

� More efficient conversion of former government facilities will not be possible unless the public consultation process is better managed

� Hong Kong is basically still insufficiently prepared to meet its future development shift


iconic buildings and relocation of government facilities to support the re-centering of the city

� Must re-examine “off limits” subject such as re-opening discussion of creating more commercial development opportunities via permitting reclamation of select outer harbor sites

� Re-centering problem is being exacerbated by short-term shortfall of office space catering to large financial institutions

prepared to meet its future development shift towards being more centered in Kowloon East

� In re-centering office market away from Hong Kong Island, S.A.R. development authorities should try to learn more from successful experience of cities like Singapore, Shanghai, Shenzhen and Taipei

Thank youThank you

Andrew Ness, Executive Director, Andrew Ness, Executive Director,

CBRE Research, AsiaCBRE Research, Asia

Hong Kong Institute of Surveyors, Hong Kong Institute of Surveyors,

2011 2011 Annual Conference Annual Conference

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