Office Leasing Hong Kong

 
 

OFFICE TERMS

Lease Term

Lease terms in Hong Kong are typically for three years.

Renewals

Options negotiable, typically a further 3 year term.

OCCUPANCY COSTS

Rent

Rent is payable monthly in advance. Rents are quoted in Hong Kong dollars (HK$) per square foot, per month and are calculated with reference to the leased area as defined by the landlord (Net/Gross/Lettable).

Rent Free

An incentive offered by the landlord to the tenant as an allowance for the fitting-out of the premises.

Management Fee

Payable monthly in advance and based on the leased area. Management charges generally include air conditioning, building security, lift maintenance and common area cleaning.

Security Deposit and Guarantees

Tenants are required to pay a security deposit equivalent equivalent to two or three months' rent, management fees and government rates.

Taxes

Government rates and rent are payable quarterly in advance and are calculated at 5% and 3% of the rateable value of the property respectively.

Stamp Duty (Ad Valorum Tax)

The landlord and tenant typically share equally a one-time cost of stamp duty at the prevailing rate, and other incidentals involved in preparation and execution of lease documents. Typically 0.5% of the average annual rent for lease terms between 1-3 years.

Utilities

The tenant pays for electricity, water, and gas used in the premises, usually directly to the utility company.

Insurance

The tenant will need to take out sufficient insurance to protect themselves against third party liabilities (including fire and flooding).

LEASE MECHANISMS

Option to Renew

Options to renew may be considered subject to market conditions and landlords.

Termination or Break

No inherent termination or break rights.

Sale & Redevelopment Clause

Many leases include sale and redevelopment clauses which give the landlord a right to terminate the lease by giving a specified number of months’ notice to terminate, if the landlord wants to sell or redevelop the building. Typically, the lessor has to give at least six months’ notice in writing to the lessee. The lease will terminate upon the expiry of the notice.

Reinstatement Provisions

A reinstatement provision is common place in most Hong Kong leases. The tenant is required to hand the premises back to the landlord at the expiration of the term, in a bare shell or standard landlord handover condition.

Landlords

Portfolio Landlords

“Portfolio Landlords” represent a large proportion of the overall market, often owning clusters of buildings including a mixture of retail and commercial. Commonly, Portfolio Landlords have been involved in the development of the property or scheme and take responsibility for building management in-house.

Single Ownership

Typically held by private investors, institutions or larger organisations. The owners will frequently employ the services of a third party specialist to take care of the day-to-day running of the property.

Strata-Title

A small number of the office buildings in Hong Kong are held by way of a “strata-title” where various landlords own office suites or floors in a building. The rights and responsibilities of property owners and overall property stewardship are outlined within the Deed of Mutual Covenant.

Associated Cost

Fit-out Costs

Fit-out costs are typically quoted and assessed on the net square footage of the space and for Class A or Prime buildings normally range from HKD 600–1200 per square foot, including construction, furniture, wiring, design fees, etc.

Ranges shown below include design and engineering fees but exclude furniture and IT cabling:

  • Average: HKD 400–600 per square foot net (basic specifications to suit-trading companies).
  • Enhanced: HKD 600 – 800 per square foot net.
  • Professional Services: HKD 800 – 1200 per square foot net.
  • Very High-End: Some investment banks spend over HKD 1500 per square foot net on renovation.

Reinstatement

The lease agreement generally requires tenants to restore the property to its original handover condition, before the expiration of the tenancy at their own cost.

Reinstatement costs for Class A or Prime buildings normally range from HKD 150–300 per square foot net.

Vetting Fees

The landlord will charge a fee for the vetting and approval of layout plans, together with a management charge for works in progress.

Each party will bear their own legal costs in the negotiation and execution of the lease and any further documentation required. Typically, the landlord’s solicitors prepare the lease agreement using fairly standard terms and conditions.

Agency Fees

If the tenant enters into a commitment with a new landlord, that landlord will pay the agent a fee; which is normally one month of the new rent.

New Lease:

  • The landlord usually pays 1 month rent to the agent who introduces a tenant to the landlord (subject to the market condition).

Lease Renewal:

  • The tenant pays the fee to the broker representing the tenant. The normal standard rate is a portion of one month or a percentage of savings over the new lease term based on the landlord’s initial quote.