MORGAN Stanley is expected to become the first tenant in what will be Hong Kong's tallest building

HONG KONG - MORGAN Stanley is expected to become the first tenant in what will be Hong Kong's tallest building, amid a property crunch in Asia's leading financial centre.
Like many of its rivals, Morgan Stanley has been expanding on the back of mainland China's economic boom and buoyant Asian markets. The US bank now has just over 1,000 people in Hong Kong, double its headcount five years ago.

It is expected to move at least part of its staff to a new tower being built across the water from Central, the city's traditional financial district, where banks are facing logistical headaches and rising rental costs because of the chronic lack of space.


Over the past year, many have had to lease additional floors in other parts of Central, or at least reconfigure their office space to cram in more desks.

Morgan Stanley, for example, now operates across five separate buildings.

Mr Anthony Ryan, head of Asian real estate investment banking at rival JP Morgan, said that while banks liked to keep staff in one place, it was 'just impossible to get space in Central at the moment', and there was 'no longer such a thing as a spare cubicle or office'.

Hong Kong's new International Commerce Centre (ICC) is due to be completed in 2010. Its 118 floors will make it the third-tallest building in the world, thereby dwarfing Central's highest skyscraper, Two International Finance Centre (Two IFC), where rents have risen almost fivefold since 2003.

By contrast, ICC is initially expected to fetch from HK$30 (S$6) to HK$40 per sq ft, similar to the price of moving into Two IFC back in 2003, according to property advisory firm DTZ.

Mr James Carss, director of banking and financial services for human resources consultancy Hudson, said: 'Pretty much every bank I've dealt with has space problems. It is also not just a matter of existing banks expanding, but also new firms, such as private equity and hedge funds, who are starting from scratch.'

Morgan Stanley would not comment on its lease negotiations, which come at a time when Central office vacancies have fallen to 3 per cent, the lowest in 17 years.

The US bank's move should also have a snowball effect. Mr Andy Yuen of DTZ said that it would 'encourage other firms to look at that area', even as banks were 'increasingly looking beyond Central'.

The Hong Kong real estate situation is also being monitored in other competing financial centres, particularly Singapore, where the Government this month raised taxation on land development to help control property prices.

A Hong Kong banker said: 'The real estate battle is not about whether people will be forced to relocate out of Central but whether banks will decide to transfer more staff to Singapore, where the Government has a much more hands-on approach when it comes to handling a property bubble.'

Central has long been the administrative and financial centre of Hong Kong. Once known as Victoria City, it was also reserved for Westerners during the early part of the British rule.

As the prospect of moving out of the prestigious surroundings of Central is ruffling feathers, most bankers predicted that back-office employees would be asked to relocate first.

Still, some recognised that Hong Kong's compact geography and good transport system would create far less disruption for them than similar relocations in New York or London.

'If you compare the lifestyle change involved for somebody who got transferred from the City (of London) to Canary Wharf, then switching to the ICC really isn't a big deal,' said one banker.

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