Hongkong Land Books 1H Loss of $833M as Office Headwinds Persist

Hongkong Land booked a total half-year attributable loss of $833 million, more than doubling its shortfall from the same period last year, as markdowns on its investment properties continued to weigh on profitability.

The Jardine Matheson-controlled developer’s underlying business recorded a half-year attributable loss of $6.9 million, compared to $422.2 million of profit for the corresponding period last year, with the company attributing the shortfall to fewer project completions and a $295 million provision on its mainland Chinese development properties. Revenue in the first half climbed 45 percent year-on-year to $972.4 million.

“The Group’s first half results produced a modest underlying loss due to non-cash provisions in the carrying value of some China Development Properties projects,” Hongkong Land CEO Michael Smith said in a release on Thursday. “Contributions from Investment Properties were stable, despite market headwinds. Excluding provisions, Development Properties contributions were lower than the first half of 2023 due to the phasing of project completions.”

To accompany the reassuring remarks, the company said it is currently conducting a comprehensive review of its business strategy and commercial priorities, and will present a strategy update upon its completion, which is expected to be before the end of 2024.

Landmark Transformation

Hongkong Land, which bills itself as the largest landlord in Hong Kong’s Central district, recorded half-year gross rental income of $691 million, staying relatively flat compared to the same period last year. Negative rental reversions within the company’s Hong Kong office portfolio were offset by higher contributions from its Singapore offices and mainland retail assets.

Average monthly net rents in the company’s Hong Kong portfolio declined 4 percent year-on-year to HK$103 per square foot during the period, marking a 14 percent decline from their HK$120 per square foot peak at year-end 2020. Overall vacancy and committed vacancy stood at 7.3 percent and 6.8 percent respectively as of 30 June, remaining largely flat from the end of December.

Those figures contrast with the rising leasing rates and tight vacancy the developer is achieving in its Singapore office portfolio, where average monthly gross rents increased 2 percent year-on-year to S$11.1 per square foot, while overall vacancy and committed vacancy stood at 2.6 percent and 1.1 percent respectively.

In the company’s Hong Kong retail portfolio, tenants logged an 11 percent year-on-year decline in sales. Monthly average net rents inched up 1 percent to HK$206 per square foot, with vacancy on a committed basis at 1.4 percent as of 30 June.

Hongkong Land is taking steps to enhance the appeal of its pricey towers amid declining rents and rising vacancy. In June, Hongkong Land announced a $1 billion investment plan to expand and upgrade over a three-year period its Landmark retail destination which underpins four of its office towers, with phase one commencing in the third quarter.

Hongkong Land will be investing $400 million in the project, while ten of its luxury retail tenants including Louis Vuitton, Chanel, Cartier and Sotheby’s will collectively contribute $600 million to the expansion, which will double the retail areas of those tenants to over 220,000 square feet.

Operating profit for the company’s development business swung into the red with a $260 million half-year loss amid fewer project completions in mainland China, Singapore, and other markets.

“Market conditions are expected to remain challenging for the remainder of the year. Despite market uncertainties, the Group’s Investment Properties portfolio is well positioned and resilient, underpinned by its quality and premium positioning,” Hongkong Land said.

Continued Downturn

Hongkong Land’s lacklustre results come as the debut of new office buildings in the city’s Central district has boosted vacancy in what was once among Asia’s most sought after business locations by 29 percent from a year earlier, according to figures from JLL.

Some 12.1 percent of Central’s grade A office space lay vacant at the end of June, the property agency said in a report released last week, rising from 9.4 percent during the same month a year earlier.

A decline in IPOs in the Asian financial centre has contributed to the deteriorating office market, as banks, insurers, asset managers and professional services companies that long flocked to the commercial hub trim their footprints in the city.

In the first half of the year, 28 companies listed on the Hong Kong bourse with proceeds of HK$12.1 billion, with the amount of capital raised having declined 32 percent year-on-year, according to a June report from Ernst & Young. That follows a 29 percent decline in 2023, according to S&P.

“Overall, net effective rents of grade A offices dropped by an additional 0.6 per m-o-m in June, resulting in a total decline of 4.3 percent in the first half of 2024,” said Cathie Chung, senior director of research at JLL. “Among the major office submarkets, Central and Kowloon East saw further rent decreases of 0.8 percent and 0.6 percent, respectively.”