Office Rents Correlate with FIRE Employment

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

November 2010


According to recent media reports and real estate projections, the grade A office market is expected to continue with its current robust state next year. Indeed, some estimates show that rents could go up to the HK$200 per square foot per month ranges. Music to the ears of office owners can also mean headaches to office occupants.

Surprised? No, your humble author would be IF this were not the case, given the extended miniseries of quantitative easing episode 2, the allure of the China and Asia economies, the historically low nominal interest rates, the still lackluster markets in most Western countries, the no-where-to-go-except-emerging-markets investors and investment managers, and so on.

But will corporations move their (more of their) operations to Shanghai? Probably, yet most would still keep a presence in Hong Kong and presence could still mean half a dozen to over dozens of people.

Putting some figures into the picture, say a presence of 24 staff each occupying a net floor area of 125 ft2 including reception, meeting rooms etc, this would still mean some 3000 ft2 which may imply over 3600 ft2 in gross terms. No big deal but it is neither too minute to smear at. Assuming one months rent as the rental commission, $200 x 3000 ft2 = $600,000. Furthermore, rents may not be the determining factor with regard to relocation, but the right staff.

Nonetheless, and notwithstanding Hong Kong having a vibrant economy and being one of the popular investment regions, little good is done to the Hong Kong grade A office market IF such economic robustness does not translate into more employment (and deployment V from abroad) of staff and executives. A company which sees growing business but does it without additional staff requires no extra office space, and only when a company decides to expand its work team would this lead to high occupancy rates and rents. 

As such, we have done simple correlations of grade A office rentals from 3 districts (Central-Sheung Wan, Wanchai-Causeway Bay, and Tsim Sha Tsui) and the unemployment rates of the FIRE industry [Finance, Insurance, and Real Estate] to gauge if the two sets of data show any significant relationship. FIRE is selected because they constitute a sizable portion of grade A office occupants. The data spreads from 2008 to present and comes mainly from related government departments such as Ratings & Valuation, Census & Statistics etc:

Correlations between:

Grade A offices at



Central-Sheung Wan



Wanchai-Causeway Bay



Tsim Sha Tsui


Essentially, all grade A offices from the 3 districts demonstrate significant (negative) correlations with the unemployment rates of FIRE. This is only natural; the higher the unemployment rate, the lower the rentals, and vice versa.  

What is interesting is we have found that there is in general a 4-to-6 month lag in 2008 between the occurrence of the lowest FIRE unemployment rate and the appearance of the highest rentals i.e. the rentals reached their highest levels after the lowest FIRE unemployment rate (or for that matter the highest FIRE employment rate) showed up.

Likewise, there is also a 2-to-6 month lag in 2009 between the highest FIRE unemployment rate and the lowest rentals. Perhaps all these tend to illustrate that it takes time for occupants (corporations) to react to the changing circumstances and to negotiate rentals. 

As to what the future may hold? Perhaps the following chart may give a hint or two:

First, it is obvious that when the FIRE unemployment rate goes up, rents trend downward irrespective of districts or locations. On the contrary, when it goes down, rentals tend to recover.  

Second, notwithstanding ups and downs, the FIRE unemployment rate has been declining since early 2009 and rentals have been gaining some ground albeit in a steady and slow manner overall.

Assuming the above trend to continue, grade A office occupants should allow for increased rentals and expect a tougher time negotiating them. 

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.    

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