Bank of China Unit Bets $396M on Pets and Co-Working in Hong Kong

A unit of Bank of China is taking a bite out of Hong Kong’s commercial property sector, as it picks up three buildings for a total of HK$3.1 billion (US$396 million), including a co-working facility in Kwun Tong and a retail property in Quarry Bay that it plans to convert into a pet-themed shopping centre.

Bank of China (Hong Kong) Asset Management closed on the acquisitions through a new property fund in late July, according to the South China Morning Post. The asset management arm of the mainland banking giant purchased the properties from billionaire investor Tang Shing-bor, known as Hong Kong’s “shop king” for his sprawling retail portfolio, who is also reported to be one of the investors in the fund.

BOCHK AM, which has $10 billion in assets under management, is betting that the niche investments will provide stable returns for its first fund focussed on Hong Kong commercial properties. The company did not disclose the price paid for the individual assets.

BOC Unit Makes Retail, Shared Office Play

As part of the bundle of deals, BOCHK AM purchased The Wave, a former industrial building in Kwun Tong that was recently converted into a multi-purpose facility combining restaurants, event space and a co-working centre. The 11-storey building at 4 Hing Yip Street is located about 300 metres from the Kwun Tong MTR station.

Kwun Tong, an emerging business district within Kowloon East, has become a target for large corporate occupiers looking to house their back-office functions in low-cost and flexible workspaces. US shared office giant WeWork has reportedly leased out a full floor for a new co-working centre at the upcoming Mapletree Bay Point in the area.

BOCHK AM also scooped up East Point Centre, a commercial property at 1056 King’s Road in Quarry Bay, which it plans to turn into a pet-focussed retail destination featuring a park, stores and clinics for domestic animals.

For its third acquisition, the Bank of China unit purchased the non-residential portion of Thai Kong Building at 482 Hennessy Road in Causeway Bay. BOCHK AM is targetting a 10 percent annual return from the property, which is located down the road from the Causeway Bay MTR station and includes Nike’s largest shop in Hong Kong among its retail tenants.

Mainland Investors Develop a Taste for Grade-B Assets

The unit of the state-owned lender is boosting its exposure to Hong Kong’s commercial properties at a time when mainland capital is increasingly targetting lower-grade commercial buildings in the city for value-add opportunities. Investors are said to be interested in co-working centres, “Ginza-style” high-rise retail buildings, and opportunities to redevelop and upgrade second-tier buildings, as grade A office prices rise beyond the reach of most mainland buyers.

Last month CLSA Capital Partners sold Zing!, a 27-storey retail-centre commercial building in the heart of Hong Kong’s Causeway Bay retail district to an undisclosed buyer for HK$2.1 billion ($268.6 million).

According to data from real estate consultancy CBRE cited by the Post, mainland investors have been involved in four grade B office deals above HK$100 million ($12.8 million) in the first half of 2017, compared to only one such transaction in all of 2016. The flurry of deals contributed to a 45 percent increase in the total value of grade B transactions during this period to HK$8.7 billion ($1.1 billion), even as overall investment volume dropped, according to CBRE.

Among those deals, a subsidiary of state-owned China Resources purchased a pair of commercial buildings on Sugar Street, Causeway Bay for HK$1.68 billion ($215 million) in June. An unnamed mainland billionaire is also said to have made an offer for the Kowloon City Plaza shopping mall, valuing the property at HK$5 billion ($639).