Despite its expensive office and residential market, Hong Kong continues to lure businesses determined to own or lease a major office on this cramped island. The number of global firms that chose Hong Kong as the location for a major office jumped by 5% in 2004, reports a Hong Kong government survey.

“Among the factors affecting the choice of location for setting up regional headquarters and offices, the low and simple tax system in Hong Kong was considered the most important,” says Mike Rowse, Hong Kong’s director general of investment promotion.

Many respondents view the high cost of renting both office and residential space in Hong Kong as a negative. Still, Hong Kong boasted 3,798 regional headquarters as of June 1—an increase of 189 from June 1, 2004. Hong Kong officials call that a record increase.

The firms cover a wide swath of industries, among them retail, trading, business services, finance and banking. American firms dominate the city’s collection of regional headquarters. As of June 1, U.S. firms had 262 regional headquarters in Hong Kong.