Hong Kong office market recovery sees return of en-bloc sales

HONG KONG (Aug 25): The recovery of the Hong Kong office market has renewed investor interest in en-bloc properties, according to the “JLL Asia Pacific Office Investment Highlights Mid-Year Review 2015” report released in August.

Some examples of transactions include the sale of Cheuk Nang Plaza in Wan Chai by Cheuk Nang (Holdings) Ltd to ITC Properties Group Ltd for HK$790 million or RM431 million (HK$14,203 psf) and the sale of Park Building in Cheung Sha Wan by a local investor to HKR International and Hanison Construction Holdings Ltd for HK$998 million (HK$6,869 sq ft).

“Both transactions were completed via equity transfer, circumventing the need to pay the higher stamp duty charges associated with direct acquisitions,” the report noted.

Vacancy rates for Grade A office market as at end-July stands at 3.2%, with Central Hong Kong at 1.4%, Wanchai (2%), Hong Kong East (0.8%), Tsimshatsui (1.7%) and Kowloon East at 5.9%.

The Hong Kong Grade A office market enjoyed solid net take-up of 253,000 sq ft as at end-July, supported by robust growth in Central Hong Kong and Wanchai, said the report.

“Driven by expansion requirements from a handful of occupiers in the lower-end of the market, the Wanchai occupier market recorded its strongest monthly growth in two years,” said the report.

The report noted that Central Hong Kong and Wanchai enjoyed healthy net take-up of 79,100 sq ft and 41,100 sq ft respectively.

Among the best-performing buildings in the market, International Commerce Centre in West Kowloon saw its vacancy rate declining from 6.1% to 3.2% in July after successfully securing several tenants from the financial services and IT sectors.

Meanwhile, the major correction in the Mainland Chinese stock markets had little immediate impact on leasing demand from People’s Republic of China (PRC) companies.

“In Central PRC, financial services and securities trading firms accounted for about 45% of new lettings. Bank of Shanghai expanded in-house at Citibank Plaza while another PRC bank leased a whole floor at AIA Central (13,600 sq ft) for its newly established investment banking division,” it said.

On the residential sector, property transactions fell 6.6% month-on-month based on the July released data.

Meanwhile, mass residential capital values grew at a moderate 0.8% on a monthly basis in July, and increased by 13.4% on a yearly basis.

Furthermore, the retail sector saw a decline of 14.9% in May and 10.4% in June for sales for jewellery and watches year-on-year.

"Visitors from Mainland China continued to slow, down by 1.8% y-o-y in June compared with a 5% y-o-y increase in May. The decline was partly attributed to the once-per-week cap imposed on multiple-entry permits issued to visitors from Shenzhen," said the report.

On the industrial sector, Hong Kong’s external trading segment continued to contract in June with the value of total exports and imports falling by 3.1% y-o-y and 2.0% y-o-y respectively.

Meanwhile, airfreight cargo and container throughput dropped by 3.5% y-o-y and 12.9% y-o-y respectively, over the same period, said the report.