2023-06-05 11:28:11
“Bloomberg” reported that commercial real estate in Hong Kong is the most expensive in the world, but the vacancy rate of office buildings is also at an all-time high. About 25% of the office building of Li Ka-shing’s Cheung Kong Group Center in Central is idle. The Henderson, a new landmark of Henderson Land under construction, which is across the Yangtze River Street and has a panoramic view of the Victoria Harbour, is only 30% leased, and both the rent and price have plummeted.
Although China and Hong Kong have fully unblocked and cleared customs, the society of the two places is returning to normal, and the economy has recovered somewhat, but the depression of the office leasing market is particularly abrupt. The report quoted Eddie Kwok, senior director of valuation and consulting services at CBRE Group Inc., as saying that the property market faces many challenges, and the price decline may slow down, but it is difficult to see a rebound. According to data from Colliers International, the overall vacancy rate of Grade A office buildings in April was nearly 15%, more than three times that of 2019 before the new crown epidemic, and even higher than Manhattan’s 12.5% and Singapore’s 4.6%.
“Bloomberg” pointed out that unlike the office buildings in Western cities such as New York and Sydney, Hong Kong’s commercial property market has not faced the problem of declining demand caused by the prevalence of home office. In contrast, Hong Kong’s housing is generally small and the local railway network is well-developed. Wage earners are more willing to go to work and return to office buildings. According to the report, the weak commercial property market in Hong Kong is due to the geopolitical risks brought regarding by the growing tension between China and the United States, coupled with the deteriorating business environment in China and the slowdown in transactions, forcing Western companies to withdraw investment or reduce local spending. Wall Street giants such as Morgan Stanley (US: MS) and JPMorgan Chase (US: JPM) have cut investment banking staff in the Asia-Pacific region, including Hong Kong employees; Deutsche Bank, Standard Chartered (02888) and BNP Paribas may withdraw from local office buildings, Or move the core business out of Hong Kong to save costs; the US Federal Express (FedEx) Asia-Pacific headquarters also moved from Hong Kong to Singapore.
With the large-scale withdrawal of capital by major international banks, even if China and Hong Kong have fully cleared the customs, Chinese-funded enterprises will not be able to “fill their seats” for a while. According to data from CB Richard Ellis, although mainland giants such as the short video platform Douyin and TikTok parent company ByteDance (ByteDance) and PetroChina (00857) have settled in Hong Kong office buildings, they only accounted for 11% of new leases in the first quarter, lower than 2017 to 2017. In 2019, the average proportion of Chinese leasing was 15%. During the period, Chinese capital also accounted for only 8% of the total transaction volume of commercial real estate, far lower than the 19% before the epidemic.
But at the same time, developers such as Cheung Kong (01113) and Henderson Land (00012) are still building skyscrapers. CB Richard Ellis estimates that at least 7 million square feet of Grade A office space will be launched in the next three years. Eddie Kwok pointed out that considering that the annual absorption rate before the epidemic was only 1.8 million square feet, it is estimated that it will take several years for the new floor to be filled. He said that as multinational companies slow down their expansion, mainland companies still hold a wait-and-see attitude towards settling in Hong Kong, and the absorption rate will definitely be greatly reduced. Neither Cheung Kong nor Henderson responded to inquiries from Bloomberg.
The report also quoted an anonymous senior executive of a foreign private equity company as saying that even if Hong Kong office property prices fell, given the bleak outlook and low returns, global investors lacked reasons to enter the market. It’s hard to reignite interest. Neil Brookes, head of global capital markets at Knight Frank LLP, said more bluntly that due to geopolitical tensions, there will not be many Western institutional investors in Hong Kong.
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