TPG Angelo Gordon JV Marketing Hong Kong Office Floors at 32% Below Acquisition Price

With Hong Kong’s office market continuing to shrink due to falling demand from tenants, a TPG Angelo Gordon joint venture is marketing a pair of Kowloon East office floors for 32 percent below their 2018 acquisition price.

A tie-up between the US investment management giant and the family behind India’s  Chellaram Shipping group has put up for sale the 18th and 19th floors of the C-BONS International Center in the Kwun Tong area at the equivalent of HK$8,800 per square foot, as Kowloon East struggles with oversupply in an increasingly feeble office market.

The joint venture is making the office space available after acquiring nine floors in the building in January 2018 for HK$2.04 billion ($269 million). That deal reflected an average price of HK$13,000 per square foot of net lettable area, with the 18th and 19th storeys representing the two lowest floors in the batch. Those value of those assets is now under pressure from weak tenant demand as vacancy in the city’s grade A office market rise after hitting a 25-year high in 2024.

“Hong Kong’s office rents will keep falling this year, and valuations likely won’t be far behind,” S&P Global Ratings said in a note earlier this month. The credit agency added that, “Given rents are still falling, we could see more distressed sales of office buildings.”

Strata Suffering

The two floors, which are being marketed by Savills for approximately HK$296.3 million with existing tenancies, span 33,668 square feet (3,128 square metres) and include six parking spaces, according to a press release from the property consultancy. 

Situated within about a five minute walk of the Ngau Tau Kok MTR Station, the C-BONS International Center occupies a waterfront site at 108 Wai Yip Street in the Kowloon East commercial hub and was completed in 2009.

Savills is managing a tender for the two floors, which is set to close on 29 April, with analysts describing the sale terms as in line with the current market.

“Considering the monthly rent of the subject of around $25, the indicative yield of this HK$8,800 per square foot property, without considering whole floor bulk discount, is 3.41 percent, which could be close to traditional CBDs such as Central and Tsim Sha Tsui,” Alex Leung, chief surveyor at CHFT Advisory and Appraisal, told Mingtiandi. 

Leung noted that there were five reported sales of whole office floors in Kwun Tong last year, and a floor in Horizon Bay, a tower located one block island from the C-BONS International Center, sold for HK$7,900 per square foot last month, according to CHFT.

Kowloon East Struggles

During January average vacancy for grade A office buildings in Kowloon East, a former industrial area which the Hong Kong government has been promoting as an alternative business location, rose to 18.8 percent from 18.6 percent a month earlier, according to JLL. 

That vacancy rate ranks Kowloon East as the most oversupplied of Hong Kong’s commercial hubs, with Central averaging 11.3 percent in January and the city’s office buildings standing 13.3 vacant overall in January, according to the consultancy.

With the TPG Angelo Gordon joint venture in 2023 having sold the 21st floor of the C-BONS International Center to Hong Kong’s Protection of Wages on Insolvency Fund Board at a premium, Savills points to the opportunity to pick up the two latest levels as a bargain.  

“Taking the latest transaction in the same building as reference, the 21st floor along with three car parking spaces was sold for HK$232.5 million in 2023, at a unit price of about HK$13,900. In comparison to this transacted floor, the property is on a similar level of floors but is up for sale at a significantly lower price, making it a great opportunity for end-users and investors to enter the market,” said Raymond Wan, chief senior director of investment at Savills Hong Kong.

Distressed Sales on the Rise

The Kowloon East tender puts TPG Angelo Gordon and its partner among a growing number of property owners offering Hong Kong office space at a discount. 

The family of the late transportation tycoon Ma Ah-muk is marketing the 45th and 27th floors of The Center at asking prices starting from HK$21,800 (US$2,800) per square foot, with that pricing representing an approximate 34 percent discount from the HK$33,000 per square foot which Ma had paid to acquire the space as part of a consortium which acquired the 73-storey skyscraper in Central from Li Ka-shing’s CK Asset Holdings in 2018.

S&P Global expects distressed office sales to rise in Hong Kong this year as high interest rates and falling rents strain the finances of property owners. 

In a note released earlier this month the rating agency forecast that grade-A office rents in Hong Kong will fall by a further 8 percent to 10 percent this year, bringing leasing rates back to 2012 levels. 

Market-wide office rents declined by 8.6 percent last year, with Kowloon East registering a slightly narrower drop of 8.0 percent and Central experiencing a widest 12.0 percent drop, according to JLL.