SEA Holdings Buys Office Block in HK’s Central After Reported 35% Price Reduction

Hong Kong-listed SEA Holdings has acquired the majority of a 24-storey office building in the city’s Central district for HK$780 million ($99.53 million), with the sale reportedly taking place after the owners agreed to drop the price by more than one third from their original expectation.

According to a filing to the Hong Kong Stock Exchange, a wholly owned subsidiary of the company has agreed to purchase 59 percent of the floor area of the Winway Building located at 50 Wellington Street from Sunny Enterprises, an investment firm based in the city.

The deal spans a gross floor area of around 34,243 square feet (3,181 square metres), including shop B on each of the ground floor, the upper ground floor, and the first and second floors; units 02 and 03 on the third to 22^nd floors; and a portion of the roof of the vintage building.

At the HK$780 million price, SEA Holdings is paying the equivalent of HK$22,778 ($2,906) per square foot for its space in Hong Kong’s financial district, with real estate advisory firm Savills having acted on behalf of the seller in the transaction, led by Peter Yuen, the company’s managing director and head of investment for Hong Kong.

According to an account in the Hong Kong Economic Times on Friday, the local family which sold the assets had earlier been asking HK$1.2 billion for the property, which sold after the price was marked down by around 35 percent.

Asset Generates HK$18.6M in Rental Income

Developed in 1963 and renovated in 1998, the 52,699 square foot (4,895 square metre) property is being held under a 999-year leasehold that commenced in June 1843. The fully occupied building, which has welcomed a number of accounting, medical and law firms since its redevelopment, is located on a prime segment of Wellington Street in the financial district, just a few blocks west of the MTR’s Central station.

As of year-end 2018, the net rental income generated from the property before and after taxation come to about HK$18.6 million and HK$15.5 million respectively, up 19.23 percent from the previous year. SEA noted in the filing that it valued the opportunity to acquire a high-quality commercial property with a stable rental income at a prime location on Hong Kong Island.

Deal Defies Flagging Market

In a statement on the deal, Yuen commented that Savills’ team was able to complete the disposal in only three months despite very challenging market conditions. Months of civil unrest in Hong Kong over the government’s proposed extradition bill, as well as the impact of the ongoing US-China trade dispute, have taken a toll on the city’s commercial real estate sector.

Commercial property investment volume in Hong Kong plunged 64 percent in the second quarter from previous three months, with the office sector affected the most severely, brokerage CBRE reported. The market value of the city’s top four developers – namely CK Asset Holdings, Henderson Land Development, New World Development and Sun Hung Kai Properties – declined more than $16 billion in the one-month period ended August 26, according to The Wall Street Journal.

Central is still the world’s priciest office leasing market by a wide margin, despite a recent report by JLL flagging rising vacancy rates, and the centrally located Wellington Street has seen a number of commercial real estate transactions in recent months.

Early this month, Hong Kong-listed CSI properties acquired the remaining four floors in a 1960s-era building on Wellington Street for HK$185 million. CSI’s acquisition came just over one month after it completed the purchase by compulsory sale of another building on the same street for HK$23 million, more than triple its estimated price last year when the sale application was filed.

Hong Kong Property Firm Boosts Portfolio

SEA, chaired by Lu Wing Chi, develops and invests in office, retail and residential properties in Hong Kong and mainland China, as well as operating hotels in Hong Kong.

In late 2017, the company teamed up with Hong Kong firms Sino Land, Wheelock Properties and K Wah International as well as mainland developer Shimao Property, to win a waterfront residential site in Cheung Sha Wan for the record-breaking price of HK$17.28 billion ($2.21 billion).

In addition to its investments in Hong Kong, SEA boosted its overseas portfolio earlier that year by picking up 33 Old Broad Street, a nine-storey office building in the City of London financial district for £258 million ($334.4 million). This followed the company’s acquisition of 20 Moorgate, a prime City of London office property let to the Bank of England, through Asian Growth Properties unit for £155 million ($192 million) in 2016.