Statistics on the rent (including fixed cost) over the total cost structure in Hong Kong SMEs

Part
01
of one
Part
01

Statistics on the rent (including fixed cost) over the total cost structure in Hong Kong SMEs

Hello! It is my pleasure to respond to your query in providing statistical information on the average costs of office space rent in Hong Kong as compared to the fixed/total cost structure of a small-to-medium-sized business in Hong Kong.
To best answer your question, we’ll cover some background information (that includes recommendations for where to rent), then we’ll look at some considerations for office spaces in Hong Kong. From there, we’ll look at the actual costs of renting an office in Hong Kong, then review how much it may cost to set-up and run a business there for the first year. Then, we’ll look at the rent as compared to the total costs. It is my hope that this information provides you with exactly what you need for your investors.
BACKGROUND & RECOMMENDATIONS
According to the 2016 Global Cities Report, Hong Kong has the highest office rental space prices in the world. Additionally, they are experiencing serious office space shortages, especially within the CBD, or Central area. This creates a challenge for individuals like you who want to set up offices there. Since I do not know what type of business you intend to open or how much space you’ll need, it is a bit difficult to determine specifics for you on costs of renting office space (or of total costs), though I have done my best to provide you with enough information to give to your investors – and to make a sound decision on where to rent your own office space.
Kowloon East, which used to be a heavily industrial area, has been in the process of being redeveloped through a government initiative since 2012. Because of this, many formerly large industrial buildings are turning into office spaces, retail spaces, co-working spaces, and other spaces (like restaurants, for example). This area has turned into the “second largest business area after Central,” and may be ideal for your business based on the exponential growth in the area and the low rental rates. As of 2016’s report, “Kowloon East’s office rents are still as low as U.S. $46.50 per sq ft per annum”. The downsides to this area include the fact that it still has industrial areas, and could have proximity issues with business clusters that would be helpful to your business to be located near.
A second option, as recommended in the 2016 Global Cities Report, would be East Lantau. It is set to “become the third core business area over the next 50 years”.
A third option would be a co-working space, which is an office area that is shared by multiple companies and offers a variety of in-house amenities for any business needs. If you have a small staff and don’t need an office in which to display merchandise or meet customers, and wish to save a significant amount on initial office expenditures (like rent, furniture, technology, etc), then a co-working space might be perfect for you. Here is a link to a list of the top 10 co-working spaces in Hong Kong, if you’re interested.
CONSIDERATIONS FOR HONG KONG OFFICE SPACE
SouthChinaMorningPost states that, “for US$100 million or HK$775.8 million, a potential buyer can get 13,966 square feet of prime office space in Hong Kong,” so you can imagine how much these buyers have to charge in rent to pay their mortgages. They also report that, “Hong Kong was likely to continue seeing the highest prime office rents for the foreseeable future – at least the next three-to-five years – owing to its huge lead and the consistent demand for space from new companies setting up shop in the city”. Additionally, the article notes that, “Hong Kong faces an office space shortage over the next four years with an estimated shortfall of around 2 million square feet by 2020”.
The 2016 Global Cities Report notes that the office rental space market drivers in Asia Pacific include typically short leases of two-to-five-years. The report also notes that, in Hong Kong, the average executive has four times as much office space allotted to him/her as his/her administrative assistant/secretary has. Executives in Hong Kong get an average of 250 sq ft of office space, while a professional gets 200 sq ft, and a support person gets 100 sq ft. Depending on the size of your business – and the size of the space you intend to rent – you may want these to vary.
OFFICE SPACE RENTAL COSTS IN HONG KONG
According to CNBC, office space rental in a prime area (like CBD) – in a skyscraper office – “is an estimated $255.50 per square foot per year”. For a small office of 880 sq ft that includes a meeting area and kitchenette, you’ll pay about $225,000 USD (1,758,093 HKD) (plus or minus) a year in rental fees. Office rental prices are expected to increase by at least 12% by the end of 2018 because there is much greater demand than there is supply for office space in Hong Kong.
OpenCompanyHongKong reports that, “Real estate prices in Hong Kong average at about 145,504 HKD for small properties and rise to approximately 193,015 HKD for properties greater than 160 sq. m”. This equals $18,621 – $24,701 USD per month.
So, to summarize, you can expect to pay in the neighborhood of $20,000 USD a month for a small office, or closer to $30,000 - $40,000 USD per month for a medium-sized office.
SETTING UP AND OPENING A BUSINESS IN HONG KONG
Without knowing exactly what kind of business you intend to set up, or the needs of that business with respect to staffing, inventory, equipment/technology/supplies, and other considerations, it is not possible to calculate how much it would cost you to set-up shop in Hong Kong. However, I can provide you with some insights into the costs you can expect to incur.
GlobalFromAsia offers a Hong Kong set-up guide that can help you set up your business in Hong Kong. Additionally, they offer some typical costs for setting up a small business in the city. They estimate it will cost a minimum of 45,000 HKD to set up your business, not including your office rental costs or any equipment or inventory costs. This figure includes:
• 10,000 HKD = General business costs
• 10,000 HKD = Accounting
• 10,000 HKD = Auditing
• 10,000 HKD = Shares of Capital
• 5,000 HKD = Other Costs
• 45,000 HKD = Just under $6000 USD (so this seems very low to me)

OpenCompanyHongKong also gives some key figures on how much it costs to open a business in Hong Kong. They discuss the incorporation costs of registering a new company in the city. These costs include 1720 HKD (application fee), 2000 HKD (business registration fee), and 250 HKD (business registration levy). As noted in the previous information, “business owners will also have to submit the minimum share capital upon incorporation, as required per the chosen type of company in Hong Kong”. For more information on this, you can also see this article from TheWorldBank.
RENT OVER TOTAL COSTS
For our cost comparison, we’ll use the following figures.
• 45,000 HKD / $6000 USD (start-up costs) +
• 25,000 HKD / $4000 USD (equipment and/or inventory) +
• 146,507 HKD / $18,750 USD (estimated office rental per month) =
• Approximately 1,836,231 HKD / $235,000 USD for your first year’s set-up costs, not including items like utilities, equipment and supplies that need routine replacement, other inventory, or salaries.
So, to summarize, depending on the size and initial needs of your business, and without considering salaries, inventory, or major equipment expenditures, you can expect to spend at least $235,000 USD setting up your business.
As you can see, the costs of renting the office space in Hong Kong will be one of the largest annual expenses for your new business (as it represents more than 10-times the rest of your costs combined, except possibly salaries and inventory) – and will require a major influx of client work and cash flow to maintain.
ADDITIONAL USEFUL INFORMATION
If it would be helpful to you to have information on Hong Kong’s economic and trade markets, I’ve included this article that apprises you of the current state of affairs.
___________________
SUMMARY
Office spaces in Hong Kong garner the highest rental prices of any city in the world. Prices are highest in the Central (CBD) area, and Kowloon East and East Lantau are gaining from the city’s overflow.
Small offices can average around $20,000 per month in rental fees, with medium-sized offices costing around $30,000 - $40,000 per month. For a small-to-medium-sized business, office space rental fees will likely be your single largest expense.
Experts estimate that, including office rental fees, general business registration and set-up fees/costs, and a small amount of inventory or equipment, but not including salaries, major equipment expenditures, or significant inventory, setting up and running a Hong Kong business for one year will cost, at minimum $235,000. When you add in a larger office space, more inventory or equipment, and salaries, that number increases exponentially.
___________________
Thank you again for your question, and I hope this information gives you what you need. Please contact Wonder again for any other questions you may have!

Did this report spark your curiosity?

Sources
Sources