State-owned reinsurer China Re rents floor at Two IFC, upgrades offices at same price as previous lease

State-owned reinsurance company China Re Asset Management is moving to the 41st floor of Hong Kong’s Two International Finance Centre (Two IFC) in Central, where it has leased 6,740 sq ft for the same price it paid for its previous offices in Three Exchange Square.

China Re will pay HK$150 (US$19.18) per square foot a month for the Two IFC space, the same rate it paid for its offices in Three Exchange Square, Centaline Property Agency said.

“The company used to rent 5,000 sq ft on the 12th floor of Three Exchange Square, which it leased three years ago,” said Ernest Tse, the senior principal sales director in Centaline’s commercial office department. “And although they are paying the same lease rate, they will now be on a higher floor.”

The Two IFC lease “is an upgrade and an expansion” for China Re, he added.

The reinsurer will, however, shell out more for the Two IFC space, at about HK$1.011 million per month, as compared to Three Exchange Square, where it paid HK$750,000 in monthly rent.

Flight to quality and companies going back to Hong Kong’s main business zone of Central are likely to be the dominant trends in the city’s office property segment this year, Tse said, adding that high vacancy rates are driving down rents.

For instance, the Two IFC space was previously leased by Funde Asset Management (Hong Kong), according to Tse. Local media reports have indicated Funde paid HK$175 per square foot for the space, which would mean China Re’s lease is cheaper by more than 14 per cent.

“Rents have become very attractive in grade A offices, so now we see companies from Kowloon or Hong Kong Island east moving to the core Central area, and for some it is a good time to upgrade to prime buildings,” Tse said.

In November, average monthly rents for Hong Kong offices declined by 0.5 per cent to HK$52.3 per square foot per month, as vacancy rates rose to about 12.9 per cent from 12.6 per cent in October, according to the latest data from JLL.

Given that new office towers with prime office space – such as the 41-storey Cheung Kong Center II with 550,000 sq ft and the 36-storey The Henderson with 465,000 sq ft – are set to come on stream in Central, the decline in office rents is likely to persist this year, Tse said.

“There will be more deals like this, because as I said, rents have become more attractive now,” he said. “In November, I had a deal where a headhunting company moved from a grade B office building in Kowloon to a grade B office building in Central. The new lease gave them 1,500 sq ft of space at HK$28 per square foot.

“The company boss said it was a good chance for them to move to Central and it will help to upgrade the company’s image.”