Gaw, HSBC-Invested Kowloon Office Building Up for Auction in September

A Kowloon East office building invested by Hong Kong fund manager Gaw Capital Partners and HSBC Asset Management will go up for auction in September, according to auctioneer JLL.

Gaw had acquired 133 Wai Yip Street, then known as the Cheung Fai Building, in 2013 for HK$930 million ($120 million) and converted the 13-storey building into an office property with retail space on the ground floor and food and drinks on the first and second floors.

SilkRoad Property Partners was said to have purchased a 50 percent stake in what was then re-dubbed as The Grid in 2017 for around HK$1 billion. HSBC Asset Management completed a buyout of SilkRoad Property Partners in February of this year.

“Given its advantageous location, the property is well-positioned to attract quality tenants, making it a compelling investment opportunity for those seeking stable rental income through long-term investment,” JLL Hong Kong chairman Joseph Tsang said Monday in a release.

Kowloon East Weakens

Tsang describes Kwun Tong as an emerging commercial hub and a destination for local and international companies seeking convenient, well-connected and affordable office spaces with appreciation potential. However, as Hong Kong’s office market continues to weaken, properties in Kowloon East, where The Grid is located, are struggling to compete for tenants.

While citywide office vacancy in Hong Kong stood at 13.6 percent at the end of June, according to JLL data, Kowloon East properties were 18.3 percent empty. While this was a modest improvement over the 18.6 percent vacancy level at the end of December, it was more than 50 percent higher than the 12.1 percent vacancy in Central and more than double the 9.1 percent level in Tsim Sha Tsui.

Average rents in Kowloon East fell 4.2 percent in 2023 and declined another 3.2 percent in the first six months of this year. At an average of HK$25.7 per square foot per month, Kowloon East office leasing rates are now down 27.6 percent from their 2019 peak, per JLL’s figures.

Located a two-minute walk from Ngau Tau Kok MTR station, The Grid offers a gross floor area of 192,857 square feet (17,917 square metres) with a typical floor plate of 14,710 square feet, JLL said.

In 2018, IWG-owned Spaces opened a flexible office centre across the top two floors and penthouse mezzanine of the building, including a rooftop terrace on the 13th floor. The property also benefits from being placed within a neighbourhood combining Grade A office buildings, shopping malls and diverse retail outlets and dining options, according to JLL.

The 1969-vintage property is to be sold on an “as-is” basis and is subject to existing tenancies and licences. The sale includes the fixtures, fittings and chattels.

The public auction will take place on 4 September at 11am in JLL’s office at One Taikoo Place.

Challenging Environment

The news comes three weeks after Mingtiandi reported that closely held Gaw was preparing to acquire the 35 percent stake that it does not yet own in Cityplaza Three and Cityplaza Four, a pair of office buildings on the eastern end of Hong Kong Island, via a public auction.

Gaw would be taking over the stake in the 1 million square foot complex from Hengli Investment Holdings just under six years after it joined the private firm controlled by investor Chen Changwei in acquiring the pair of buildings from Swire Properties in a $1.9 billion deal.

With Hong Kong’s office market facing record low occupancy, Hengli since late last year has failed to make its share of payments on a loan on the property, with Gaw having covered the obligation on behalf of its partner.

With that obligation continuing to be unfulfilled, the private equity firm is now positioned to take full ownership of the property.