The Impact of a Rapidly Expanding Service Sector on Private Office Property: The Case of Hong Kong

Hong Kong's economy has undergone a remarkable transformation over the past two decades. The rapid expansion of the service sector is a major outcome. Within the services sector, the finance, insurance, real estate (FIRE) and business services sub-sector is the most influential and also the major source of generating demand for office space in the economy. This paper examines how the rapid expansion of the FIRE and business service sub-sector influences new office construction. Using the Engle-Granger (1987) methodology for cointegration and error correction mechanism (ECM), the causal relationships between growth of sub-sectors of the services sector and the new office space construction were explored. The FIRE and business services sub-sector growth is shown to be cointegrated with new office space construction. The paper reports empirical findings based on a sample survey on location and quality of space. The study reveals that the growth of the FIRE and business service sector has influenced office space development in terms of location of space, per capita space and the type and quality space during 1981-2000.