Mainland Property Tycoon Loses 31% on Hong Kong Office Sale

A founder of a Hong Kong-listed mainland developer appears to have taken a 30 percent haircut on an office investment in the New Territories as the city’s commercial real estate market continues to slip this year.

A set of three private companies registered to China South City co-founder Leung Moon-lam sold the top three storeys of the K83 office tower in Kwai Chung to an unknown buyer for HK$183 million ($23.6 million) – some HK$72 million less than it had paid to acquire the 15,276 square foot (1,419 square metre) space in 2018, according to a local media report.

The cut-rate New Territories deal comes as local media on Thursday reported a sale of an interest in an office in the Center on Queen’s Road in Central at a record low price with strata office developers in the city also now discounting new units to help fortify their cash reserves.

Kwai Chung Project Loses Value

Leung, who co-founded Shenzhen-based China South City in 2002 but no longer serves on the developer’s board, in 2018 purchased floors 20 through 22 of the building at 83 Tai Lin Pai Road from Hong Kong-based First Group Holdings, which built the asset.

The real estate veteran had purchased the space when First Group began marketing the project that year with units being promoted at prices from HK$10,000 and HK$12,000 per square foot before the office tower was completed in 2019.

In the time since Leung purchased his Kwai Chung space, however, the Hong Kong market has begun to face headwinds after an extended boom period.

In a report released late last week, JLL found that, in terms of area, new office lettings dropped by 14 percent in July compared to the previous month, with the sum of office space leased in the city totalling 277,100 square feet less than it had in June.

In Central, usually the most sought after district, vacancy rose to 5.7 percent in July as office rents in the commercial hub fell by 0.7 percent.

Hong Kong Office Market Slides

So far, 2020 is shaping up to have the lowest number of strata-title office transactions and the smallest average deal size since 2007 according to fresh information from property data provider Real Capital Analytics.

With RCA finding that the volume of overall property transactions in Hong Kong fell by 80 percent during the first six months of 2020, compared to the same period one year earlier, investors are selling strata office assets at record low prices.

In July, a company controlled by Chong Hing Bank scion Jeffrey Liu Wai-lun reportedly purchased a unit in Sheung Wan’s Shun Tak Centre at HK$22,000 per square foot – the lowest price in four years. That deal came after a a unit in the neighbouring China Merchants Tower sold for HK$22,600 per square foot in May.

Similar scenes are playing out around Hong Kong. Early this month the Tung Cheong Commercial Building at 221 to 221A Nathan Road in the Yau Ma Tei neighbourhood sold for HK$510 million ($66 million), slashing nearly 50 percent from its HK$1 billion asking price in 2018, local media reported citing Land Registry records.

Meanwhile, just three transactions have been recorded so far this year, in the strata-titled Lippo Centre Tower in Admiralty, with the average price of those 2020 t has made with the average price dropping 17 percent compared with 2019 to reach HK$27,380 per square foot.

The rise of working from home will provide no relief and while more office workers choose to stay home, overseas companies – which account for 60% of Grade A office space according to Colliers – are surrendering their offices en masse.

Net absorption was again negative in the second quarter of 2020 with occupiers shrinking their office footprints by 68,000 square metres in the period ending 30 June, versus a 28,000 square metre contraction in the first quarter according to Colliers.

First Group Rides Wave of Kowloon Purchases

For First Group, which has made a speciality out of developing strata title office towers in Kowloon, diminishing demand for space at its K83 project does not seem to be a deterrent from taking on new projects in the area.

With that Kwai Chung property having been on the market for two years, in late March, First Group announced the purchase of a 9,600 square foot site on Cheung Sha Wan Road in Lai Chi Kok — about 4 kilometres south of the K83 project, with plans to combine it with a neighbouring plot acquired earlier in the month from the Fung family of Li & Fung fame.

Sirirat Mongkolnawarat provided additional research for this story.