Hong Kong office market to be dominated by buyers from China

More record-breaking deals involving mainland buyers are expected in the coming months

PUBLISHED : Tuesday, 23 August, 2016, 9:05pm
UPDATED : Tuesday, 23 August, 2016, 10:58pm

Chinese state-owned banks and corporates will continue to be the dominant buyers in Hong Kong’s grade-A office market as they look to capture international capital and diversify their ownership structures to grow.

Property consultants expect to see more record deals from Chinese buyers in the coming months, warning that the aggressive sums they are paying may price others out of the market.

“Capital outflows brought about by the broadening of cross-border investment channels and expectations of further renminbi depreciation against the US greenback will continue to underpin demand from mainland financial institutions in the Hong Kong office market,” said Denis Ma, the head of research at JLL’s Hong Kong office.

A number of larger China financial institutions are known to be actively looking for opportunities in the city’s office sector, Ma said.

[ICBC] studied the buying possibilities at The Center a few months ago

The companies are in the spotlight again after Cheung Kong Property (Holdings) put its remaining 75 per cent ownership of The Center, a 73-storey building in Central, on the market at an asking price of HK$35 billion. State-owned enterprises, including banks and insurance companies, are said to be the potential bidders.

The buying trend comes just months after China Life Insurance, the country’s largest insurer, paid HK$5.85 billion for Wheelock & Co’s One HarbourGate office tower and retail podium in the Hung Hom district. China Evergrande Group, the country’s second-largest developer, also paid a record HK$12.5 billion for the 26-storey Mass Mutual Tower in Wan Chai from Chinese Estates Holdings.

Carlby Xie, the head of China research at Colliers International, said more Chinese state-owned companies will be headed to Hong Kong with the full backing of the central government under the “Going Out” policy.

As a regional financial and legal hub, Hong Kong plays a pivotal role in providing the professional services needed by mainland corporates seeking to step into global markets, according to Xie.

The stock connect cross-border trading schemes between Hong Kong, Shanghai and Shenzhen are seen as catalysts for China’s companies to enter Hong Kong.

Three of the “Big four “ state-owned banks – Bank of China, China Construction Bank and Agricultural Bank of China – have their own office towers in Hong Kong’s Central Business District in Central.

Industrial and Commercial Bank of China (ICBC) gained naming rights after leasing more than 140,000 sq ft across several floors, at ICBC Tower in Central.

There have been rumours that ICBC has been looking to own its own office tower in Central.

“The bank studied the buying possibilities at The Center a few months ago,” said a source with knowledge of the bank.

Demand for office space from China’s corporates has been steadily rising as the need to diversify

business operations has led ever-more firms to establish a physical presence in Hong Kong.

Mainland corporates account for about 21 per cent or 5.2 million sq ft of all office space leased in the Central grade-A office market, up from 10 per cent in 2009. If the trend continues, JLL estimates that up to 28 per cent of that tenant base will be mainland corporates by 2021.

In 2015, 1,091 mainland corporates had offices in Hong Kong, a 52 per cent increase from 10 years earlier, according to a research report released by JLL early this year.