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Hong Kong’s office landlords may have reached peak suffering from rental slump with stocks at bargains, Morgan Stanley says
- Some stocks have factored in as much as a 40 per cent decline in rental from the current level, which is unlikely, Morgan Stanley says
- Work-from-home may have smaller impact on Hong Kong’s office market compared with other Asian financial capitals
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Hong Kong’s office landlords may have reached peak suffering from the rental slump, according to US investment bank Morgan Stanley. The work-from-home arrangement may not inflict much more pain.
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Office rents in the city declined by 13 per cent in the first half this year, the most six among Asian cities, it said, driving stock prices deeply below their asset backing. While the trend may persist this year, the damage is already in the price, it added.
The assessment suggests investors have been too pessimistic in discounting the fortunes of some of Hong Kong’s biggest commercial property owners, even though the local economy remains in deep recession, vacancy rates at the highest in a decade and the departure of some technology firms are threatening to hollow out the Central business district.
Developers including Sun Hung Kai Properties, Swire Properties and Hongkong Land control about US$345 billion worth of top-grade office space in the city, or 42 per cent of the value across six financial capitals in Asia, Morgan Stanley estimates.
“HK Land and Swire Properties have factored in as much as a 40 per cent decline in rental from the current level, which is unlikely, in our view,” the bank said in its July 27 report. Sun Hung Kai Properties’s valuation “is one of the cheapest the stock has shown historically.”
Share of the three companies have slumped by 28 to 41 per cent over the past 12 months, compared with an 11 per cent decline in the benchmark Hang Seng Index.
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