Concrete Analysis | High property prices boost appeal of office refurbishment

With consistently high demand for office space on the mainland and in Hong Kong, it is not surprising that investors have been spending heavily in both markets.

Despite government strategies to ease overheating of the property sector, office building investment remains among the most attractive and stable options in the market.

However, rising property prices have forced investors to reconsider their investment strategy. This marks the end of the mass-purchase era and the beginning of strategic acquisition and value maximisation.

Instead of looking for new development opportunities in the property market, more and more investors are shifting their focus to how to maximise profit from their existing portfolios. We see many buildings in city centres or prime business districts that are underperforming in terms of rental yields in this region, especially in first-tier cities on the mainland. This is because most of these buildings are ageing. Their building structures and space utilisation are considered outdated and are unable to keep up with the rapid changes in modern office requirements.

Office building refurbishment offers an excellent opportunity to improve the income and performance of an older building in most city-centre locations. A recent Arcadis report entitled "Office Refurbishment in Global Cities" showed that Hong Kong, Shanghai and Singapore are among the Asian cities that promise relatively high returns for office building refurbishment investments.

A shortage of commercial land in strategic locations in this region has driven rental prices upwards, making building refurbishment more attractive in first-tier mainland cites and in Hong Kong. Examples include the Pemberton and the China Resources Building in Hong Kong, with market values of the buildings increased by the investments in office refurbishment.