Kailong Group Puts 5 Commercial Assets on the Market for Combined $302M

Kailong Group has put a total of five Hong Kong commercial assets on the market within the past two months, with the disposals to total as much as HK$2.37 billion ($302 million), should the fund manager succeed in finding a buyer for all five properties.

The assets include a pair of en-bloc commercial buildings, as well as two entire floors and a unit in a separate tower – all located on Hong Kong Island. Kailong this month began marketing 58 Wing Lok Street, an office building in Sheung Wan, through a public tender with an asking price of HK$450 million, following a 10-month high for property sale and purchase agreements in the city in May at 7,946 transactions.

A few MTR stops to the east, a tender for Kailong’s Konnect commercial building in Wan Chai on 303 Jaffe Road began in April, with the fund manager asking HK$1.85 billion for the combined office and retail property. That tender had closed on 8 June, though a winning bid had not yet been announced.

With the city’s commercial property market showing a rebound in investor appetite during the second quarter, the fund manager was said to have sold an 18th-floor unit at the 333 Hennessy Road commercial tower in Wan Chai for HK$11.8 million last week. Kailong is also offering floors 5 and 6 in the project for a reported asking price of HK$31 million per level.

Sheung Wan Sale

Kailong’s marketing effort follows a quiet first three months of the year in Hong Kong, with total investment volumes having fallen 46 percent quarter-on-quarter to HK$11.2 billion, according to a Colliers report published in April.

In its Sheung Wan en-bloc tender the fund manager is making available a 21-storey office building spanning about 20,100 square feet (1,867 square metres) of floor area, with the ground floor reserved for retail space, according to a press release from Knight Frank which is the sole agent for the sale.

Equivalent to about HK$22,500 per square foot, the asking price for 58 Wing Lok Street is “very reasonable,” considering that opportunities to acquire en-bloc commercial properties in the area are limited, and buyers would be paying a higher premium compared with strata-title acquisitions, said Antonio Wu, head of capital markets for Greater China at Knight Frank.

To maintain flexibility for potential buyers, Kailong has kept the office building unoccupied, said Wu.

Monthly rents for Grade B offices in Sheung Wan average between HK$32 to HK$38 per square foot, said Alex Leung, senior director at CHFT Advisory and Appraisal.

Rental rates in this market segment have declined by about 5 percent since the first quarter of 2019, before the city was hit by challenges from both social unrest and the COVID-19 pandemic.

Unloading Wan Chai Assets

Just months before the announcement of the Sheung Wan tender, Kailong had put on the market Konnect, a 25-storey office and retail building on Jaffe Road, at an asking price equivalent to a unit rate of HK$21,458 per square foot.

Rents at existing Ginza-style commercial buildings in Wan Chai and Causeway Bay run from HK$50 to HK$80 per square foot per month, according to a press release from Colliers, which marketed the property.

Asking rents for office space at Konnect currently range between HK$40 and HK$55 per square foot per month, according to listings from brokerage firm Prime Property.

Less than 300 metres (328 yards) from the Jaffe Road tower, Kailong is marketing floors 5 and 6 of 333 Hennessy Road at reported unit prices of HK$17,704 and HK$17,765 per square foot, respectively, after selling room 2 on the 18th floor this week to notch its first sale in the project.

Sales Slow

With the city’s investment market expected to remain slow and full-year transaction volumes projected to slide by 5 percent to HK$70 billion in 2022, Kailong is marketing its Hong Kong island portfolio amid falling office rents and capital values.

The company has previous experience selling amid a local downturn after having disposed of eight office floors at the Yue Thai commercial building in Central for a combined HK$350 million in May 2020.

Value-Add Strategy

Kailong had purchased the Hong Kong Island assets it is now marketing through a series of purchases in 2017 that totalled HK$3.7 billion. Of the eight properties the firm purchased that year, Kailong spent a combined HK$1.65 billion on the two Wan Chai assets on Hennessy Road and Jaffe Road.

The Sheung Wan property was acquired within the same year, as part of a set of five en-bloc acquisitions in the area that totalled HK$1.4 billion.

That series of purchases took place about two years before the firm’s October 2019 closing on $575 million in equity for its Greater China Real Estate Fund II, which primarily focuses on office opportunities in first tier cities in mainland China and Hong Kong.