CSI Properties has landed Hong Kong largest office lease so far this year with the company signing up Hong Kong’s Hospital Authority for its Harbourside HQ project in Kowloon Bay, with the administrator of Hong Kong’s government hospitals and health institutes relocating much of its team to the project.
In an emailed statement on Tuesday, CSI Properties said the Hospital Authority is leasing up to 100,000 square feet (9,290 square metres) of office space in the building which was known as the Octa Tower until CSI led the acquisition of the 26-storey tower in 2018.
“We expect this deal to not only boost market sentiment for grade A office leasing in Hong Kong, but also attract more attention to high-quality grade A offices in the core Kowloon East district,” CSI Properties chairman and executive director Mico Chung said.
The Hospital Authority is taking two and a half floors in Harbourside HQ after Kowloon East logged the highest vacancy rate among grade A office submarkets in Hong Kong during July, according to a report released this week by JLL. At 20.2 percent, the level of empty offices in the area is more than 8 percentage points higher than the city-wide average vacancy rate of 12.9 percent.
Deals Come to the Desert
With Hong Kong’s office market recording negative net take-up of 224,600 square feet during July to continue a year-long contraction, according to JLL, CSI’s mega-lease stands out in a desert of deals.
The Hospital Authority’s lease with CSI outstrips MUFG Bank’s 86,800 square foot commitment in Nan Fung Group’s AIRSIDE project in Kai Tak in March, which had ranked as the year’s biggest office deal until now. CSI did not cite financial details for the agreement, with online listings currently promoting smaller units in the building at rates from HK$17 to HK$20 per square foot per month.
JLL noted that major office leasing transactions in July involved Wafra Capital Partners renting 13,900 square feet in Billion Centre Tower A in Kowloon Bay.
ICBC is said to be wrapping up a deal to take 200,000 square feet in CK Asset’s Cheung Kong Centre II in Central, however, that transaction is not known to be finalised.
Harbourside HQ currently has units available for lease ranging from 2,500 to 4,000 square feet and has already attracted tenants from the banking, technology, and telecommunications sectors. Online listings show US security company Chubb, Swiss consulting firm Bureau Veritas, label maker Avery Dennison and ad agency Hotmob as tenants in the tower, which underwent extensive renovations after the 2018 acquisition.
“We are confident about the upcoming leasing performance in Harbourside HQ with the significant tenant Hospital Authority moving in,” CSI Properties told Mingtiandi.
CSI teamed up with Cheung Chung Kiu, the chairman of mainland developer CC Land, and tycoon Poon Jing’s Asia Standard International Group, to purchase what was then the Octa Tower from Nan Fung in 2018 for a reported HK$8 billion with CSI indicating that it had an additional partner in the acquisition. At the reported price, the consortium paid HK$10,738 per square foot for the property.
Among the building’s former tenants include WeWork, which handed back its space in the building in May 2020 after renovations were nearly completed but before physically occupying the space.
The Hospital Authority currently occupies its own building along Argyle Street in Kowloon, which is almost 40 minutes away by bus transport. The majority of the Hospital Authority’s services will be relocating to Kai Tak, the government said, with its Harbourside HQ office as its primary location.
The move is said to “support the medical and commercial core plans under the Kai Tak Development Plan,” which is the city’s scheme to redevelop the former industrial neighbourhood.
Harbourside HQ is just five minutes from the Hong Kong Children’s Hospital and 15 minutes by bus from Kai Tak Hospital, which is currently under construction. The building is within the Hospital Authority’s Kowloon Central Cluster network, which also includes the city’s biggest hospital – the Queen Elizabeth Hospital.
Leasing Market Stays Soft
JLL noted in its report that office rents in Hong Kong continue to slide city-wide, declining 0.6 percent in July compared to the previous month to an average HK$53.8 per square foot.
During last month Central, the city’s high-end commercial hub, saw office rents decline 0.6 percent, while rates in the Wanchai/Causeway Bay area slid by 1.4 percent, according to JLL. Only the Tsimshatsui area in Kowloon saw rates rise, albeit at a gentle 0.1 percent.
“The leasing performance at Harbourside HQ has been doing well and it has limited premium office space remaining for rental,” CSI Properties told Mingtiandi.
With the lowest leasing rates of any of Hong Kong’s major commercial hubs, Kowloon East was the only area in the city that did not see its office leasing market contract in the first half of 2023, according to Cushman & Wakefield.
After achieving positive net take-up of 1,500 square feet in 2022, tenants leased a net 147,000 square feet in the district in the first six months of this year.
The district will soon see more supply entering the market, however, with Biel Crystal now on track to begin developing a 720,000 square foot vertical retail and office building in the Kwun Tong area.