The Hong Kong property investment market’s status as a deal desert was confirmed on Wednesday with the appearance of what seems to be a 33-storey mirage.
Property consultancy Savills has prepared a marketing document promoting Three Exchange Square in the city’s Central district to potential investors, with Sing Tao Daily, which first reported the sale effort, citing an asking price of HK$16 billion ($2 billion) for the grade A tower.
“The market rumor is pure speculation. Hongkong Land has no plan to sell any of the buildings in Central,” a Hongkong Land spokesperson told Mingtiandi. Hongkong Land had completed an internal transfer of Three Exchange Square into a special purpose vehicle during 2021, however, there were no indications of the move being part of preparations for a sale of the 335,000 square foot (31,122 square metre) building.
Multiple market sources indicated to Mingtiandi that Savills had been pitching the tower to potential buyers, particularly mainland investors, although no substantial discussions were confirmed. Inquiries by Mingtiandi to Savills had not received a response by the time of publication.
Prime Asset, Central Location
The marketing document touts Three Exchange Square’s location in Central, as well as its connectivity via pedestrian overpasses, MTR stations and the Airport Express train.
Also featured is a tenant list that includes China Merchants Bank, law firms DLA Piper and Allen & Overy, ANZ Bank and S&P Global. At the reported pricing, a potential buyer would be purchasing the property at around a 3 percent yield.
Hongkong Land completed Three Exchange Square in 1988 with the tower standing as the final phase in a 1.4 million square foot office complex fronting on Victoria Harbour.
The building’s neighbours, One and Two Exchange Square, are home to the Hong Kong stock exchange and the three-tower complex also hosts offices for Ping An Bank, China Life Franklin Asset Management, Commonwealth Bank of Australia and real estate firms Hines and ESR.
While the three buildings have traditionally been among the most sought-after in Hong Kong, they are now facing new competition from Henderson Land’s The Henderson project, which will bring 465,000 square feet of prime space into Central when it opens later this year.
Also entering the Central market this year is CK Asset’s Cheung Kong Centre Two, with that 498,000 square foot property bringing new supply of grade A office space in the district this year to 960,000 square feet.
In its most recent financials, Hongkong Land declared a loss attributable to shareholders for the first six months of 2023 of $333 million, however, the division of conglomerate Jardine Matheson also noted current assets of $4.8 billion against current liabilities of $2.9 billion.
While not providing statistics on individual properties in its portfolio, Hongkong Land said in the report that its Central office portfolio was 93.1 percent occupied as of 30 June, although that represented a slide from the 95.3 percent mark recorded a year earlier.
In the 12 months ending in June average rents in the company’s Central portfolio declined from an average of HK$111 per square foot to HK$107 per square foot. However, those prices still leave Exchange Square and its neighbour, Jardine House, as some of the most expensive office properties in the world.
Apart from cases of distress, Hong Kong’s office market has been nearly devoid of asset sales this year, with MSCI reporting this week that the April through June period represented the city’s low-water mark in terms of both the number of office assets traded, and the total value of those assets, since the firm began collecting data in 2007.
With fund managers struggling to deal with higher interest rates and asset owners loathe to part with properties in a down market, during 2023, the only significant en-bloc sales of office asset in Hong Kong were PAG and Mapletree’s HK$5.6 billion purchase of the Goldin Financial Global Centre in a January distressed deal, and Schroders’ HK$350 million disposal of a Mongkok commercial tower that same month.
During the past year marked-down properties such as the former China Evergrande Centre in Wanchai have failed to find a buyer despite several rounds of price cuts.
Build and Hold – Usually
While Hongkong Land is known for holding onto its properties for the long-term, there are instances of building disposals in the past, with the company having sold the 9 Queen’s Road office tower in Central to a mainland-backed consortium in May 1992.
The Innsbruck consortium paid the equivalent of HK$7,000 to purchase the property at the intersection of Queen’s Road and Ice House Street before selling off the individual floors on a strata title basis.