Office investors gain more bargaining power
Hong Kong's office market has entered a consolidation phase after a strong run-up in prices, handing the advantage in haggling over deals to buyers, say property agents.
Signs are that landlords of strata-title grade A offices are already responding to the turnaround in sentiment over the market outlook by becoming more flexible on asking prices.
'Before May they were not willing to cut asking prices of offices as they were still confident at this stage that prices would keep rising,' an agent said.
'But they are now finding it difficult to sell the properties at existing prices and some have shown a willingness to cut prices by about 5 per cent if they get a solid offer,' he said.
As a result, buyers who remained on the lookout for office investments now had higher bargaining power, agents said.
According to the research department of Savills, prices of grade A offices rose an annualised 35 per cent in the fourth quarter of last year and again in the first quarter of this year, taking prices in Admiralty, Central and Sheung Wan to new record highs above the levels reached after the financial crisis of 1997-98.
But investors dug their heels in at this point, said the agents, doubting that there was room for such price gains to continue in the wake of the subprime credit crisis now dogging global asset markets.
Another property agent said that many investors had adopted a wait-and-see attitude towards office investments due to the uncertain outlook of the economy, while some had even chosen to forfeit their deposits and withdraw from uncompleted deals.
Indonesian investment fund De Monsa is a case in point. It has changed tack since being one of the most active investors in the office market in the past few years, amassing a portfolio estimated to be worth about HK$2 billion.
But market talk is that since tighter loan conditions were required by lenders, the fund did not proceed with a proposed transaction at the Bank of America Tower in Admiralty last month and had delayed the completion date of an acquisition of office floors at Silver Fortune Plaza in Central from June to the end of last year.
Property agents expect the poor market sentiment to continue in the second half of this year until office prices drop by more than 10 per cent, which they forecast is likely due to the uncertain outlook.