Lexington Partners snaps up Two IFC office space left vacant by earlier tenant as New York fund expands in Hong Kong

Lexington Partners, a New York-based manager of secondary private equity funds, is moving into one of Hong Kong's tallest office towers as it scooped up prime commercial real estate left vacant in the world's most expensive city.

The fund has taken up the units 2903 through 2909, totalling 8,900 square feet (827 square metres) at the Two IFC office tower in Hong Kong's Central business district. The fund's office had been at York House at Landmark in Central for the past 10 years, a company spokesman said.

The previous occupant at the Two IFC space had surrendered units 2903 through 2905 slightly earlier, allowing Lexington to scoop up the space.

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"Lexington Partners is moving to a larger space due to growth," the spokesman said, declining to provide financial details.

Hongkong Land Ltd. meets the media to announce that it plans to open the third office tower at The Landmark, York House, in October 2006. 22 March 2006 alt=Hongkong Land Ltd. meets the media to announce that it plans to open the third office tower at The Landmark, York House, in October 2006. 22 March 2006

Lexington's relocation is a rare bright spot in a market blighted by the coronavirus pandemic. Office vacancy rates rose to 9.3 per cent, or 5.7 million sq ft in the second quarter, higher than the 8.9 per cent recorded in the first three months of the year, according to Savills.

Premium office space rents fell 2.6 per cent in the April to June period, slower than the 3.5 per cent decline in the previous quarter. Last year, the city's main business district of Central saw a number of multinationals leaving for other business districts to cut costs amid the coronavirus pandemic.

About 1.1 million square feet of space in Central was estimated to have been left vacant in May 2020, according to CBRE. Companies ranging from online travel specialist Expedia to Macquarie Bank, and even the creator of the League of Legends mobile game, have trimmed their office demand.

In 2020, an unprecedented 2.7 million square feet of Hong Kong's office space were left empty, according to JLL.

Overall office vacancy rate in Hong Kong rose to 9.5 per cent at the end of June, the second highest level since the end of April 2004 or more than 17 years ago, according to JLL

"Looking forward, we believe the gross leasing volume to improve in the second half of 2021," said Alex Barnes, head of agency leasing at JLL in Hong Kong. "However, the market will continue to record net withdrawal during the period due to the considerable amount of marketable space to be made available in the next six months. It will drive the vacancy rate higher."

Hong Kong is the world's most expensive city for office rentals, with Central district fetching an annual rent of US$307 per square foot, 30 per cent more than the US$235 per square foot in London's West End and almost 53 per cent higher than the US$201 per square foot in Beijing's Financial Street, according to a report by CBRE.

With a monthly average of HK$114 per sq ft in the second quarter, Central rents were still at a 91 per cent premium to the general market, although they have fallen from the 96 per cent premium recorded a year ago, according to Savills.

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