Insurance bonanza drives demand for office spaceFebruary 11, 2016 / By
While much attention has been focused on the growing demand from PRC banks and financial services firms in Hong Kong’s office market, flying quietly under the radar has been the city’s insurance sector. In 2015, new lettings from the sector amounted to more than 301,000 sq ft, making it one of the best performing outside of the all-important banking and finance sector. Insurers have also been active in the investment market, acquiring buildings for self-occupation. China Life, Manulife and AIA are just a few of the insurers that have turned to the investment market in recent years to meet their office requirements. Collectively, insurers have leased and purchased over 3.2 million sq ft of Grade A space over the past five years.
The uptick in requirements has been driven, in part, by the growing trend of mainland visitors purchasing insurance policies in Hong Kong. Based on the latest industry data available at the end of September, mainland visitors are estimated to have spent HKD 29 billion on insurance policies in 2015, which would be 18% higher than the previous year and 351% more than 2011 levels. In contrast, total policies are likely to reach HKD 132 billion in 2015, up about 16% year-on-year and 88% over 2011.
Most mainland visitors are coming to the city to purchase savings-type life insurance policies. These policies generally offer 4-5% annual returns, which is significantly higher than the 1-2% returns offered by policies sold on the mainland. The depreciation of the Renminbi and Hong Kong’s link to the US dollar—which is expected to strengthen further against most global currencies as US interest rates steadily normalise—has also played a role in the market’s growth. Under current laws, insurance agents are restricted from selling products on the mainland. Hence mainland Chinese have to come to the city if they wish to purchase insurance policies.
To meet the surge in demand, insurers have added an extra 22,000 in headcount over the past five years with 12,800 being added in the past two years. It is these additional headcounts that have been driving demand from the sector in the city’s office market; albeit largely concentrated in decentralised markets such as Hong Kong East and Kowloon East, where most insurers have relocated their offices over the past 10 years.
Although China’s foreign exchange regulator has recently capped the purchase of overseas insurance products using UnionPay debit and credit cards at USD 5,000 per transaction (effective February 4), industry pundits don’t believe it will have a significant impact given that most mainland visitors who purchase policies already have bank accounts in Hong Kong. Moreover, data from insurance firms in Hong Kong suggest that about 70% of all policies are priced at or below the USD 5,000 threshold.
Looking ahead, the insurance sector remains as one of the few bright spots in the city’s office market, especially given that a number of banks have recently announced another round of layoffs. Given the favourable demographics underlying the growth of the sector—China’s aging population and growing affluence—there is no reason to expect that the strong growth seen in recent years won’t continue; in both the investment and leasing markets.
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