ICBC Said Leasing 10 Floors in CK Asset’s Cheung Kong Center II in Hong Kong

After contracting by more than 420,000 square feet (39,000 square metres) in the first half of 2023, Hong Kong’s office market may be about to see its biggest lease of the year, with ICBC said to be preparing to sign a deal for 10 floors in CK Asset’s Cheung Kong Center II in Central District.

The deal, which is said to be awaiting final approval by ICBC brass in Beijing, would relocate the Hong Kong headquarters for the world’s largest bank by assets from Champion REIT’s 3 Garden Road a few blocks away, to a 200,000 square foot (18,580 square metre) space in the soon-to-be-completed grade A tower, according to market sources familiar with the discussions who spoke with Mingtiandi.

ICBC was estimated in local media reports to be paying around HK$80 to HK$90 ($10.22 to $11.50) per square foot per month, to become the largest tenant to date in the 41-storey tower. However, market analysts who spoke with Mingtiandi speculated that a commitment of this scale would command a rate around 25 to 30 percent less than that in the current market.

Should the lease be completed, the deal would allow CK Asset to fill nearly a third of the 32 office floors in the grade A building, with market reports indicating that as of now the developer had inked deals with just three tenants for the equivalent of around one full floor of space as the tower nears completion later this year. When it first announced the project as the redevelopment of Hutchison House in 2018, CK Asset estimated the cost at HK$31.8 billion (then $4 billion).

New Hong Kong Home for Mainland Giant

ICBC is known to have been in the market for a new office for some time office leasing professionals told Mingtiandi, with rumours floating the company as a potential buyer for Hongkong Land’s Three Exchange Square, which Savills has been marketing.

In addition to its 10 office floors, ICBC is reported to be taking a 6,000 square foot ground-level unit for use as a branch location in the building at 10 Harcourt Road, with the company said to be getting naming and signage rights for the tower as part of the package.

Leasing rates in 3 Garden Road averaged HK$99.7 per square foot at the end of last year, according to Champion REIT’s annual report, and should ICBC achieve just a HK$10 per square foot savings, it would be able to cut its rent costs for the 200,000 square foot commitment by HK$2 million.

Market sources also indicated that the company is moving some of its back office staff to Sun Hung Kai Properties’ The Millennity in Kowloon East’s Kwun Tong area.

In addition to moving a block or two closer to the centre of town, ICBC’s potential new home would provide the bank with 3.2 metre (10 feet, six inch) ceiling heights, raised floors, and amenities like a “Zen Sky Garden” on the 26th floor.

With average vacancy across Hong Kong rising to 17.3 percent at the end of June from 17.1 percent at the end of the first quarter, ICBC’s current home in 3 Garden Road has struggled to maintain tenants in an increasingly competitive market, with the 1992-vintage complex falling to 17.3 percent vacancy at the end of 2022 from 11 percent a year earlier.

In a report issued earlier this month, Swire Properties said it had lowered rents by an average of 12 percent for new leases, renewals and renegotiated office deals in its Pacific Place complex just across Hong Kong Park from 3 Garden Road.

Tenants in Hong Kong gave up 172,700 square feet more grade A office space than the total amount of new leases signed in the city’s office market during the second quarter, after notching negative take-up of 248,200 square feet in the first three months of the year, according to Cushman & Wakefield, as geopolitical tensions, higher interest rates and a drop in IPOs staggered the market.

Tenants Get Scarce

With 550,000 square feet of office to lease in the Cheung Kong Center II, which is located just a few doors from Cheung Kong Center I, where agency sources now estimate vacancy at 25 percent, CK Asset has good reasons to offer deep discounts to an anchor tenant.

Colliers announced in May that it had arranged the first lease in the property, which local media have identified as mainland China corporate United Energy Group, which is said to have leased around 8,500 square feet. Average floor plates in the Cheung Kong Center II are 17,254 square feet, according to its website.

Since that time, agency records show two other deals have been signed in the building, including local biomedical and tech investment firm Ally Bridge taking a 5,260 square foot space on the 39th floor of the 41-storey tower, according to the Hong Kong Economic Times.

JLL is reported to have advised on the ICBC lease, with company representatives declining to comment on the reported transaction. CK Asset and ICBC had not responded to queries from Mingtiandi by the time of publication.

More Supply, Less Demand

CK Asset, which made headlines in Hong Kong’s residential market earlier this month when it offered 15 percent discounts to boost demand for a new condo project in Kowloon, is facing stiff competition for its new project in what has traditionally been Hong Kong’s core business hub.

Henderson Land is still scrambling for tenants to fill The Henderson, its 465,00 square foot project located three-minutes’ walk south of Cheung Kong Center II, with that building now said to be around one-third committed. The 36-storey building on Murray Road in Central, which earlier signed up private equity firm Carlyle and auction house Christie’s as tenants, is expected to fully open to tenants within this year.

Hongkong Land, which owns Central landmarks such as Exchange Square and Jardine House, reported a loss of $333 million in the first six months of the year, partly due to a decline in average rents in its Central office portfolio from HK$112 per square foot as of 30 June 2022 to HK$107 at the halfway point of this year.

JLL noted in a July report that Grade A office rents slid by an average of 2.6 percent in Central during the first six months of 2023 and predicted that rates in the district could slip by 5 percent for the full year.

In a recent report Colliers estimated that around three million square feet (278,709 square metres) of new grade A offices will be rolled out this year in Hong Kong, which it predicted would put further pressure on landlords to cut rents.