Office Floor in Hong Kong’s Central Sold for 58% Off 2018 Purchase Price

A floor in a commercial tower which once set the record for Hong Kong’s most expensive office is now a contender to be named the city’s greatest loss of value as distressed sales become the norm in Asia’s most expensive real estate market.

After paying the highest price per square foot of Hong Kong office space ever when it purchased the top floor of 9 Queen’s Road Central for HK$530 million ($67.5 million) in 2018, local property firm Winland Group has now sold the space for HK$225 million, according to official records.

The Lun family which controls Winland Group parted with the 8,570 square foot (796 square metre) property at a 57.6 percent markdown from the purchase price seven years ago in their latest in a string of loss-making sales. With office rents continuing to drop and banks wary of defaults, analysts see steep markdowns becoming the norm in Hong Kong’s commercial real estate market. 

“We expect such a big discount sale would not be a one-off occurrence but would be more common in the coming months,” Alex Leung, chief surveyor at CHFT Advisory and Appraisal, told Mingtiandi.

The Harder They Fall

Winland paid the equivalent of HK$61,844 per square foot to acquire the 34th floor of 9 Queen’s Road Central in early 2018 just before commercial property prices peaked in the second half of that year. 

Since that time grade A office values have declined 47 percent Leung said, citing data from the city’s Rating and Valuation Department. With Winland selling the floor for the equivalent of HK$26,254 per square foot he added that, “The top floor of 9 QRC is one of the recent sales with the biggest drop from their acquisition prices.”

The drop in value for the 1991-vintage asset comes despite 9 Queen’s Road Central’s prime location within a few minutes walk of HSBC’s head office and Central MTR station. Winland had also invested to expand the office onto part of the tower’s roof, in addition to adding an outdoor terrace, according to CHFT.

Property agency Savills began marketing the office floor on Winland’s behalf last December at an asking price of HK$352 million with the eventual sale representing around a 36 percent discount from that initial target.

The buyer is understood to be a mainland investor named Zhou Weirong, who made the acquisition through local private company Hongxingyang Limited. The property comes with an existing lease to a medical group which generates a monthly rental income of around HK$740,000.

Since peaking in 2019, average grade A office rents in Hong Kong have fallen 42.2 percent, according to data from Cushman & Wakefield, as the city’s financial markets have slowed and tenants have become more cautious regarding office expenses.

Winland Struggles

The Central office sale is the latest in a series of discounted disposals by Winland and the Lun family as plummeting commercial property values have compelled banks to demand fresh capital from many borrowers in the city.

Winland chairman Edwin Lun Yiu-kay last month sold a detached house at 88 Red Hill Road in Tai Tam area for HK$82 million, with that price representing a nearly 52 percent markdown from what he paid to acquire the property in 2018, HK01 reported earlier this month.

In February, Winland Group sold three floors at 16 Yan Ching Street in Tuen Mun, New Territories for HK$118 million and two floors at 28 Shu Kuk Street in North Point for HK$107 million, booking a 62 percent loss in each of the two sales from its acquisition costs, according to local media accounts.

Earlier this month, Hong Kong-listed Mexan Ltd, which is chaired by Edwin Lun, appointed Savills to market a unit on the 47th floor of Far East Finance Centre at an asking price of HK$22,000 per square foot, which represents a 63 percent markdown from the company’s 2018 acquisition cost.

In February, Mexan sold an 800-room hotel in the Tsing Yi area to Hong Kong’s airport authority for HK$765 million.