Has Hong Kong reached its tipping point as a World City?

Recently one Bettina Wassener (IHT) wrote on in her article (Link 1) that Hong Kong is losing its edge as an International Finance Hub, and is potentially in danger in the long term unless the supply of office space increases.

There are several flaws in this article and its citations, in that 1. Hong Kong is not in danger of in terms of its long-term prosperity because of a "lack of office space" and 2. that there is a lack of office space.If there were to be any imposing threats on Hong Kong's status, it would be the rapid emergence of the Chinese Markets and the rising influence of the RMB.

The reasons are as follows:

1. Hong Kong, and Singapore are the two financial hubs of Asia Ex-Japan. There are mainly two reasons for this - the geographical location of these two cities with respect to the rest of the Asian Markets, and consequently the convenient time zones. This is the reason why all BBs have APAC HQs in Hong Kong (HK)/Singapore (SG).

2. On the contrary to the articles sources there have been increasing office space supplies in Hong Kong with the construction of new office buidlings (One Island East, CCB (22 floors), ICC (100+ storey) to name a few). BAML in fact is looking to occupy a 7 floor vacancy at the Cheung Kong Centre (Link 2)

Starting from around 2007, a large number of non-chinese financial institutions began to set their Asia regional headquarters in Hong Kong. Although the majority of these companies have been mainly on the buy-side, there have also been a few US boutiques expanding their exposure in this part of the world.

This influx has been partly credited for the rise in the price of office spaces the past few years. However, given the aftermath of the 2008 crises, quite a few companies have been downsizing their headcounts, and consequently moving into smaller office spaces. This downsizing has left scattered vacancies in Central (i.e. Exchange Square 1, 2, and 3).

3. If there were to be threats to Hong Kong's long term outlook, it would be China's plans to establish Shanghai as the front runner of the regional financial markets by slowly increasing the RMB exposure. It's no secret that China has constantly undervalued its currency through strict regulations of its currency, and of its financial markets. Investing in China is terribly difficult given all the rules and restriction for all types of asset classes. China requires a Qualified Financial Institutional Investor license which also has a quota for how much a licensee is allowed to invest (170 Members on last official data release). Given these restrictions, the loss of Hong Kong's status does not seem an imminent threat.

Interesting note: all of the ICC BB tenants signed their leases at a considerable discount (so that ICC could attract a good tenant mix). Morgan Stanley moved into the building even before the building was complete!

Comments (12)

9y
antmavel, what's your opinion? Comment below:

2 simple reasons why HK will keep going down: 1) A large part of the HK role was to act as a gatekeeper for China, this role is now somewhat obsolete. Transparency is better in china than 20 years ago though it doesn't mean that it's all good but definitely improved compared to the past status. Today companies are going straight to Shanghai and don't set up holdings in HK to manage their chine business 2) The rise of singapore. All financial businesses are gradually moving there for a large number of reasons.

Best Response
9y
International Pymp, what's your opinion? Comment below:

Hong Kong isn't going anywhere.

Yes, it's a bit crazy that prime office space in central is so scarce that it's worth like $5,000 psf, and that this type of asset literally never trades because everyone "knows" its just going to be worth more and more and more over time. The residential market is also pretty wacky, especially with the emergence of the Chinese buyer. I've seen some truly mediocre 5 million dollar apartments there - it's nuts.

But that said - hong kong's citizens are powerful, well educated, wealthy and have established themselves throughout the world. HK is the best access point to the China market (unless you're going to locate directly within it) and it's the second best access point to SEA markets (after Singapore). The city has highly developed infrastructure and an extremely deep pool of highly trained specialized workers including financiers, lawyers, etc... it's also got a vibrant tourist and retail industry which helps to diversify the economy, and of course it's an immense shipping port, feeding off of China. Lastly, and I this has been touched on above, hong kong has a highly transparent and well-developed legal system - not comparable to that on the mainland.

Summary- it's not going anywhere, but be careful about buying an apartment in the city- prices are completely crazy right now.

  • 3
7y
banatejocel, what's your opinion? Comment below:

Well yes, I agree. If there were to be any imposing threats on Hong Kong office rental position, it would be the speedy emergence of Chinese markets. To keep Hong Kong's place as the top financial and commercial center, government should really keep on adopting a multi-pronged approach to guarantee a stable and enough supply of excellent office space.

7y
banatejocel, what's your opinion? Comment below:

Well yes, I agree. If there were to be any imposing threats on Hong Kong office rental position, it would be the speedy emergence of Chinese markets. To keep Hong Kong's place as the top financial and commercial center, government should really keep on adopting a multi-pronged approach to guarantee a stable and enough supply of excellent office space.

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7y
easternaffairs, what's your opinion? Comment below:

I think Hong Kong will continue to have an edge over Singapore unless China collapses

6y
WinterIsHere, what's your opinion? Comment below:

Bump. How is HK doing now?

It appears that a large part of occupy central was driven due to lack of economic opportunities. As Shanghai continues to open up, HK will lose its premium as the gate-keeper to China. Hong Kong will never disappear, given its legal institutions, global infrastructure, deep talent pool, etc., but it would be difficult to maintain its eminent status. Thoughts?

6y
WinterIsHere, what's your opinion? Comment below:

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