HONG KONG: Hong Kong's loss is Beijing and Shanghai's gain.

Overseas-conscious but relatively small companies are shifting their offices to mainland cities because it's becoming difficult for them to afford the rents in Hong Kong's central business district. Rents in Hong Kong have risen to a 12-year high that is, to the levels of the Southeast Asian economic boom.

Of course there are those that still prefer Hong Kong. But many have reduced their occupancy areas.

The Executive Centre is a premium office-space provider for smaller business groups, mainly in Central and Admiralty, and has been on the receiving end of this phenomenon. Over the past year about a dozen of its clients have downsized their office spaces in Hong Kong.

"Hong Kong has become a difficult market now. About a dozen of my client companies reduced their presence (office space) in Hong Kong from 10-person offices to an average of two," Executive Centre CEO Paul Salnikow said yesterday.

The impact of rapidly rising rents, said Ricacorp Properties director Freddy Ho, will be felt more by the smaller companies than the bigger ones.

Ho said: "An address symbolizes a company's strength, so a giant conglomerate wouldn't mind spending more to maintain its image. But the rising rents will make smaller groups struggle for survival."

Many such companies that are clients of the Executive Centre are now looking for space in Beijing or Shanghai, where costs are much lower.

"Our clients in Beijing, mainly multinational corporations," Salnikow said, "have in general expanded from three-person offices to ones that can accommodate 11 people. Some have turned to Shanghai, too, to seek office space."

The increasing demand has prompted the Executive Centre to invest more than US$19.5 million until 2008 to cash in on the market. It invested US$4 million in the first half of this year, mostly to open new centres on the mainland, double the size of its Taiwan Centre and seek vacant space in "less tight" areas of Hong Kong.

The average rent in Central has hit the 1994 record of HK$68 per square foot, property consulting firm DTZ Debenham's Tie Leung said. And it is likely to reach HK$70 to HK$75 in the second half of the year as economic recovery brings landlords stronger bargaining power.

The Executive Centre, which operates "five-star" service offices in prestigious buildings in major business and commercial districts across Asia, said it would focus on its core business; it has no intention of stretching into the serviced apartment business or buying commercial properties in Hong Kong, despite surging real estate prices.

Founded in Hong Kong in 1994 by the then 30-year-old Salnikow, the group provides tailor-made offices for new businesses that want to spend on business development or those looking to improve their company image at low cost.

The company's services range from telecom network installation to document translation.

(China Daily 08/10/2006 page9)