Hong Kong, which boasts the most expensive office rents in the world, has become a sought-after destination for Chinese companies seeking to boost their global brands.
As analysts start turning bearish on Hong Kong home prices, the commercial property market is showing no signs of cooling, with Chinese companies shelling out record amounts for trophy buildings.
Sellers have reached out to potential buyers including Industrial & Commercial Bank of China, Bank of Communications and Fosun International, according to brokers who asked not to be named because the information is private. AIA Group is among bidders for a Swire Properties commercial building in Kowloon Bay that may fetch HK$8bn ($1bn), Hong Kong Economic Times reported on Wednesday, citing unidentified people.
Hong Kong, which boasts the most expensive office rents in the world, has become a sought-after destination for Chinese companies seeking to boost their global brands. They are also drawn by the prospect of higher returns and the potential for further currency appreciation on signs that the mainland economy is slowing. Evergrande Real Estate Group and China Life Insurance Co bought office blocks in separate transactions worth a combined HK$18.35bn ($2.4bn) in mid-November, breaking previous price records. Buying a property is also a way for international companies to eliminate the risk of costly rent increases in the future, real estate analysts said.
“I expect this to continue as major occupiers in Hong Kong see a lack of future office supply and are concerned their rents will increase,” said John Davies, executive director for Institutional Investment Properties at CBRE Group. “I still think major occupiers will look to buy their own buildings in Hong Kong – to satisfy occupancy needs and manage future costs and limit exposure to what will be office rental growth.” Wheelock & Co, which sold One HarbourGate West Tower to China Life earlier this month, has started a sale of the East Tower, an adjacent unfinished office building it’s developing in the Hung Hom area of Kowloon, people with knowledge of the matter said. It could fetch about HK$4bn ($516mn), attracting interest from several Chinese financial firms, the people said.
“We understand from property agents that East Tower attracts great interest in the market,” Eva Ho, a spokeswoman for Wheelock, said in an e-mailed response to Bloomberg queries.
She declined to comment further.
Representatives at AIA, Industrial & Commercial Bank of China and Bank of Communications declined to comment on their plans in the Hong Kong property market. A spokeswoman for Fosun did not answer calls and an e-mail seeking comment.
Prices of Grade-A office space in Hong Kong’s Central district are up 78% since the beginning of 2010, and 121% in the Kowloon East district over that period. The gains come against the backdrop of weakness in other parts of the property market. On the residential property side, prices could decline by as much as 20% in the next three to six months, Bocom International Holding Co said. Retail rents are also falling as the city’s appeal as a shopping paradise for mainland tourists has waned, with Jones Lang LaSalle expecting street rents in Central to drop a further 10% in 2016 after falling about 20% to 30% this year.
Sigrid Zialcita, managing director of research for Asia-Pacific at Cushman & Wakefield in Singapore, says Chinese insurers will become major investors in Hong Kong commercial real estate as part of their global portfolio diversification.
Chinese insurance companies only hold about 1% of their assets offshore, compared with 10% to 15% for their US and European counterparts, she said.
Ziacita’s date shows price gains for Hong Kong office buildings have outstripped rent increases, nearly doubling since the third-quarter of 2009, while rents are up slightly more than 50% in the period. Though rents in Central increased 12.5% in the third-quarter from the year-earlier period, yields remain the lowest among financial centres, behind New York and London.
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