Hong Kong’s sliding office market is pushing the city’s best known commercial landlord into the red, as Hongkong Land late last week declared a loss attributable to shareholders for the first six months of 2023 of $333 million.
The owner of Jardine House and Exchange Square saw committed vacancy in its Central portfolio rise to 6.9 percent at 30 June from 4.7 percent a year earlier, at the same time that average rents in the properties declined to HK$107 per square foot per month from HK$111 per square foot at the end of 2022.
The first half loss came after the division of conglomerate Jardine Matheson had booked a $292 million profit attributable to shareholders in the first half of 2022, with the slide due in part to a revaluation loss of $755 million on its investment properties during the first six months.
“The 2023 revaluation loss is principally attributable to the Hong Kong office portfolio following a modest decrease in market rents and a slight cap rate expansion,” Hongkong Land said in its earnings release.
Office Decline Continues
Hongkong Land’s office woes mirror the experience of the city’s broader market, which contracted in the first half of the year, recording a negative net take-up of 326,000 square feet (30,286 square metres), according to a JLL report last month.
The property consultancy reported a 2.1 percent decline in average office leasing rates across Hong Kong during the first half of the year, with rents in Central sliding by 2.6 percent.
“Global economic uncertainties and higher financing costs ensured office leasing momentum slowed marginally compared with the first half of 2022,” Ada Fung, executive director at CBRE Hong Kong, said of the city’s office market in the first half of the year in a statement dated 10 July.
Hongkong Land reported more encouraging results from its Singapore office portfolio, which includes stakes in the Marina Bay Financial Centre, One Raffles Quay and One Raffles Link. In the Lion City the company saw office vacancy decline to 2.1 percent at the end of June, from 7.5 percent 31 December. Committed vacancy in its Singapore offices stood at 1 percent.
While the office market suffers in its home city, Hongkong Land is already seeing a recovery in its retail business, after Hong Kong broke free from pandemic-era lockdowns late last year.
The company’s Landmark retail properties delivered an improved performance during the first half of 2023, following several challenging years for the retail market in Hong Kong. Higher tenant sales and the removal of temporary rent relief led to an increase in average retail rents to HK$204 per square foot for the period, up from HK$168 in the first half of 2022, as the Landmark portfolio continued to be fully leased.
The company also reported improved contributions from its luxury retail malls in Beijing and Macau climbing tenant sales helped to boost rents.
Development Sales Slow
Lower revenues from Hongkong Land’s development properties also dented the company’s results in the first half as revenue for the sector fell to $131.9 million during the period from $372.6 million a year ago, which was attributed in part to fewer completed projects in mainland China.
Contracted sales during the period were $745 million, however, up from $419 in the first half of 2022, with Hongkong Land completing the acquisition of a pair of projects to add to its mainland pipeline.
The mixed commercial and residential projects in Nanjing and Wuhan were both acquired for below development costs, the company said.
The retail rebound and growing development pipeline helped Hongkong Land’s leadership to keep a positive outlook for the rest of 2023, with chairman Ben Keswick remaining sanguine as underlying profit dipped just 1 percent to $422 million in the first half of year from the same period in 2022.
Full-year underlying profits are expected to improve somewhat compared to 2022, driven by the timing of Development Properties project completions,” Keswick said. “Modestly higher contributions from Investment Properties are also anticipated, as improved retailtrading performance is expected to offset negative rental reversions in Hong Kong. The Group’s balance sheet remains strong.”