Exclusive | Hong Kong’s office landlords raise creditworthiness requirements as more commercial tenants walk away from leases
- Several office owners are doubling, in some cases tripling, the money they require as security deposit, particularly for tenants who are unknown to them
- The industry norm in Hong Kong is for three months’ worth of rent as deposit
Commercial landlords in Hong Kong, who own some of the world’s most expensive offices, are doubling or tripling the money that tenants must put down as deposit, as a downturn in business sentiment and tightening liquidity in China have led to several cases of renters reneging on leases.
Tenants of businesses related to cryptocurrencies, and those who hail from mainland China – especially those who are less-known to Hong Kong’s landlords – have been placed under scrutiny, according to several office owners and consultants in the city.
“The economic outlook has soured, so we have to be more cautious on every deal, not just the companies from China,” said Tai Hung Fai Enterprise’s founder Edwin Leong Siu-hung, adding that he would demand six-month rent as deposit and bank guarantees for unknown tenants who want to lease any space from his portfolio of offices and retail shops.
Until recently, mainland Chinese tenants were the biggest occupiers of Hong Kong’s best office locations. That stopped with the Chinese government’s 2017 crackdown on overseas remittances and tightening of liquidity. HNA Group, one of China’s most prolific offshore asset buyers, had to give up on the five floors it rented at Three Exchange Square to cut its borrowing costs.
“We have seen smaller Chinese private enterprises, mainly financial companies such as wealth management or asset management firms, walking away from leases,” said Ricky Lau, deputy managing director head of office leasing at Savills. “That never happened in 2018 when the market was strong.”