China International Capital Corporation (CICC) is leasing one and a half floors in Kowloon’s International Commerce Centre (ICC) against a backdrop of sliding rents and rising vacancy in Hong Kong’s office market.
The Hong Kong unit of banking giant CICC, which already occupies at least 120,000 square feet in Central district’s One IFC, is adding about 50,000 square feet (4,645 square metres) in the grade A West Kowloon tower, marking Hong Kong’s largest office expansion so far this year, local media reported.
CICC, which ranked first in mergers and acquisitions in China’s A share market for the eighth straight year in 2021, led all joint global coordinators of Hong Kong IPOs last year, including backing Baidu’s $3.55 billion secondary listing on the HKEX in March of 2o21.
By moving into the entire 56th floor and half of the 55th at ICC, the Beijing-based bank signifies the changing roles of global financial institutions in the Hong Kong market as it replaces Germany’s Deutsche Bank, which had surrendered three floors in the tower during January of last year as it trimmed its footprint.
Expanding to West Kowloon
Built by Sun Hung Kai Properties, Hong Kong’s largest developer by market capitalisation, ICC spans 118 storeys, and offers about 2.5 million square feet of office space atop the Kowloon MTR station.
In a move to expand from Central’s One IFC, CICC is said to be paying HK$75 per square foot per month for its new space in the Sun Hung Kai Development at 1 Austin Road, local media reported. That rate would represent a 25 percent slide from rental tariffs in the same building at the market peak in mid 2019, said Alex Leung, senior director at CHFT Advisory and Appraisal.
CICC’s latest leasing deal represents a continued expansion by the banking giant, and takes place about one year after the bank reportedly paid HK$130 per square foot to add 53,000 square feet to its existing footprint at One IFC as part of an expansion in that same building
Net effective rents at ICC currently average HK$75 per square foot per month, according to agency sources. Prior to the 2019 social protests and the COVID-19 outbreak in the following year, however, rents at the ICC had averaged slightly more than HK$100 per square foot, said CHFT’s Leung.
CICC’s Kowloon lease places it among a growing cadre of Chinese state-owned enterprises which have leased space in prime Hong Kong buildings since 2019, when Beijing began encouraging SOEs to put more money into the territory. In June, the local unit of China CITIC Bank agreed to take up around 15 percent of Swire Properties’ Two Taikoo Place project.
CICC and CITIC Bank are expanding their Hong Kong footprints despite the city’s overall grade A office market having shrunk by 96,800 square feet (8,993 square metres) in June, after eight straight months of positive take-up, according to JLL.
While the mainland banks grow their presence, in May, Japan’s Nomura Securities reportedly surrendered the entire 26th floor at Central’s Two International Finance Centre, retaining about half the space it had initially taken up when it leased close to six floors in the tower three years ago.
Hong Kong Office Sector Takes Hit
The mainland investment bank’s Kowloon expansion may come as good news for the city’s beleaguered developers which have seen values of their properties slide as investment deals taper off.
Acquisitions of commercial property in Hong Kong slumped by 50 percent in the first half of 2022 from the same period a year earlier, according to MSCI data, with overall transaction volume reaching just$2.3 billion. The office sector took the biggest hit, recording the lowest volume and deal count in the region for a second quarter.
“Hong Kong’s once-mighty office sector continues to remain exceptionally quiet, with the only signs of activity at the smaller end of the market,” said David Green-Morgan, head of real assets research at MSCI. “Demand for the city’s bigger towers has dried up, illustrating the growing gulf between buyer and seller expectations amidst the market slowdown.”
Mainland companies have been beneficiaries of the city’s sliding investment market, with Shanghai developer Tomson Group having this month agreed to acquire the 13th floor in Admiralty Centre Tower II for HK$193 million, translating to a unit price of HK$18,161 per square foot, which is reportedly the lowest rate recorded in the building over the past five years.