HK offices still hot property while home prices drop

HONG KONG • 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 and 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$8 billion (S$1.46 billion), Hong Kong Economic Times reported yesterday, citing unidentified sources.

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 bought office blocks in separate transactions worth a combined HK$18.35 billion in mid-November, breaking previous price records.

Buying a property is also a way for international companies to eliminate the risk of costly rent hikes in the future, 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 Mr 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."

AIA, Industrial and Commercial Bank of China and Bank of Communications declined to comment on their plans. A spokesman 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 per cent since the beginning of 2010, and 121 per cent 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 per cent 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 per cent next year after falling by about 20 to 30 per cent this year.

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A version of this article appeared in the print edition of The Straits Times on November 26, 2015, with the headline 'HK offices still hot property while home prices drop'. Print Edition | Subscribe