With rising interest rates dimming the appeal of bank loans, Hong Kong’s Swire Group have turned to their Hong Kong office portfolio to raise cash, with two of the conglomerate’s listed units announcing late Friday that they have agreed to sell a set of 12 office floors for HK$5.4 billion ($693 million).
In a notice to the Hong Kong exchange Swire Properties and its parent entity Swire Pacific jointly said that they are selling floors 42 through 54 in One Island East, a grade A office block in the Quarry Bay area, to Hong Kong financial regulator the Securities and Futures Commission, which currently occupies nine storeys within the space.
“The Disposal will enable Swire Properties to realise cash from its investment in the Property,” the companies said in explaining the rationale for the sale. They added that, “The proceeds from the Disposal will be applied towards the general working capital requirements of Swire Properties.”
That capital may be directed to developing new projects nearby, with a Swire joint venture in September having secured a HK$6.3 billion development site less than one hundred metres (109 yards) from One Island East. The company is also ready to develop a 779,000 square foot commercial project on a consolidated site at 8 Shipyard Lane in Quarry Bay.
Biggest End-User Buy Since 2019
Swire’s sale sees the company turning over 296,000 square feet in the 69-storey office tower to the SFC in what is Hong Kong’s largest office investment by an end user since 2019, according to JLL, which advised the government agency on the transaction.
“The interest rate hikes have impacted the investment demand for Hong Kong’s commercial properties in recent years,” said Oscar Chan, head of capital markets at JLL in Hong Kong. “However, given that the demand dynamics, defensive nature and limited office supply in core business districts on Hong Kong Island, high-quality offices will continue to attract the interest from both end-users and investors.”
At the stated consideration, the SFC is paying approximately HK$18,243 per square foot to own its corporate home with the agency issuing a statement pointing to the deal as a way to reduce expenses and simplify its operations.
“This acquisition is cost saving in the long run as the SFC invests in its own assets and eliminates rental expenses,” said SFC chief executive Julia Leung. “Becoming the owner of the leased office space would spare us the hassle of further office relocation, minimise disruption to our operation and in line with the best practice of an environmentally conscious organisation.”
Under the terms of the agreement, the SFC is paying for its floors in the tower, which is ranked in the Platinum category under Hong Kong’s BEAM regimen for green buildings, over the next five years. The organisation will take possession of the nine floors which it already occupies from December of this year, with the sale of the remaining three floors to be completed by 2028.
The purchase does not include the 49th story in One Island East, which is used as a refuge floor and is not available for occupancy.
In selling off the floors in One Island East, Swire is achieving a price around 14.5 percent higher than what it received when it sold CityPlaza One, an older office asset 600 metres (656 yards) to the east in 2020. A consortium including Manulife Investment Management, Gaw Capital Partners and Pamfleet (now Schroders Real Estate) had paid HK$15,609 per square foot for CityPlaza One during the height of the pandemic when Swire Pacific’s Cathay Pacific unit was reporting record losses.
The transaction ranks as the largest office deal on Hong Kong island this year with the HK$5.6 billion purchase of the Goldin Financial Global Centre by a joint venture between Mapletree Investments and private equity firm PAG in January still standing as the city’s biggest real estate transaction of 2023.
Swire Steams Ahead
While real estate markets in Hong Kong and mainland China have slid this year, Swire Properties has moved to expand its presence in both markets through a series of substantial deals.
In September a Swire joint venture with rival Henderson Land completed its acquisition of a set of ageing buildings at 16 to 94 Pan Hoi Street and 983 to 987A King’s Road – just steps away from One Island East. The partners plan to redevelop the properties into a 487,213 square foot residential project.
Further up King’s Road East, Swire in March 2022 completed its acquisition of the Zung Fu Industrial Building and in June this year said that it had acquired the last pieces of the adjoining Wah Ha Factory Building at 8 Shipyard Lane, with the company saying that it intends to develop the consolidated site for office and other commercial uses.
In mainland China, Swire last week broke ground on Taikoo Li Xi’an, a joint venture with local government company Xi’an Cheng Huan Cultural Investment and Development, which is expected to be a RMB 10 billion project. Swire Properties said in commencing its fourth Taikoo Li project in the country that it expects to complete construction in Xi’an in phases from 2026.
In Shanghai, Swire said in October that it had purchased 40 percent stakes in both a commercial-dominated project near its existing shopping centre in Pudong’s Qiantan area, and a residential-driven development in the district’s Yangjing neighbourhood from Lujiazui Group for a combined RMB 9.7 billion. The Qiantan project is expected to be completed in 2025, while the Yangjing development is scheduled to debut in 2028.