Cyberport lease demand in doubt
Thursday, August 16, 2001
SOPHIA WONG
With the global economic slowdown and the technology bubble bursting, there are increasing worries about the interest of international companies in leasing Cyberport office space.
No significant space commitment has been recorded, although the phase-one buildings are due to be ready in March.
Estate agents worry the initial strong interest shown by international information-technology companies may not happen.
Cyberport, the HK$15 billion joint venture between the Government and Pacific Century CyberWorks, was once regarded as the most popular "would-be campus" for international IT giants. Most big players had indicated they would be anchor tenants.
Two months ago, the Government announced nearly 90 per cent of Cyberport office space could be filled by about 50 applications from IT companies.
It all seemed fine as major technology players did not want to lose the chance to exploit the environment for interactive research and development together with industry peers.
However, estate agents said leasing interest had slowed due to the uncertainty about the United States' economy. Most technology companies had frozen expansion plans. No companies could make a pre-leasing decision about Cyberport until the global economy improved, they said.
"It is a very difficult time for the tech companies to expand as their future profitability is not guaranteed," one agent said.
The industry suffered globally and share prices of most companies shrank 75 per cent, he said. Now IT firms prefer to wait and see if the concept of an IT hub will be realised at the Cyberport after construction is completed and office space taken up.
Space commitments had been deferred because most companies were cutting trimming budgets during the economic downturn, another agent said.
"No one is expanding and former intentions about renting Cyberport offices might not be able to be accomplished at this stage," she said.
"They are still showing interest of making a move to Cyberport, but no one has signed a contract yet."
According to Deputy Secretary for Information Technology and Broadcasting Annie Tam Kam-lan, by June there were more than 50 information technology companies which had formally applied to lease office space at Cyberport.
Ms Tam said the applications could fill 88 per cent of the office space. The development, located in Pokfulam's Telegraph Bay, and divided into three phases providing 1.2 million feet of office space, will be completed by the end of 2003.
She said phase one provided about 247,000 sq ft of offices and was 10 per cent over-subscribed.
"We have to select from the applications and then refer appropriate applicants to Cyberworks. Three companies had been approved by June," she said.
But the approved applicants might defer signing. "Though the applications have no legal binding, it is a kind of commitment further indicating their leasing intentions," she said.
Some potential anchor tenants which had signed letters of intent last year had not yet processed applications. Ms Tam declined to name these firms.
CyberWorks provided no information about the commitment of tenants in the Cyberport offices.
A total of 15 information-services and IT companies signed letters indicating their intention of becoming anchor tenants. They included IBM, Hewlett-Packard, Microsoft, Softbank and Yahoo!.
An IBM official said the company had not proceeded with its application as leasing offices also concerned other factors.
She said the company, presently renting six floors at PCCW Tower in Taikoo Place, Quarry Bay, still had an interest in the Cyberport project.
Yahoo!, now renting Sunning Plaza in Causeway Bay, would wait until completion of the Cyberport development and evaluate the need for relocation of offices and actual demand for office space, an official said.
Another potential anchor tenant waiting in the wings is Microsoft. An official there said the company had not finalised the size of office space needed and which departments would be relocated.
"We still think that we will be an anchor tenant at Cyberport," she said. Apart from the economic uncertainty and technology companies' stricter budgets, agents said declining competitiveness of office rentals in Cyberport was another main factor slowing leasing commitments. Average office rents have been on the decline this year.
The Government set monthly rentals for Cyberport office space in the range of HK$11 per square foot to HK$13 per sq ft, but this was during last year's tech industry boom. At that time, it was a heavy discount compared with HK$20 per sq ft at Taikoo Place - which agents said was then attractive to most potential tenants.
"Now, competitive rentals should not be higher than HK$8 or HK$9 per sq ft," one agent said, noting the need for the Government to re-assess Cyberport rent levels.
He said IT companies were waiting for an improvement in the global economy while trying to bargain for more competitive rentals.
Ms Tam said tenants relocating to the Cyberport technological hub did so mainly because of its facilities.
"None of the international companies will be concerned about the leasing cost," she said.
But the Yahoo! official had a different view.
She said rental definitely would be one of the factors to be taken into consideration when relocating an office. She said the transport network was another important element.
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