Hong Kong property

Analysts predict upbeat year for office space

As government focuses cooling measures on residential properties, office space will sustain upbeat records of sales and rent levels

PUBLISHED : Wednesday, 23 January, 2013, 12:00am
UPDATED : Wednesday, 23 January, 2013, 4:47am

Limited policy risks and a shortage of supply will ensure sustained investment activity in Hong Kong commercial property, agents say.

And capitalising on the strong and growing demand expected during the year, some developers are planning to offer some of their office properties for sale on strata titles, the agents add.

Johnnie Lau, executive director of Midland Commercial, a unit of Midland Holdings, said investors began to shift their focus to non-residential real estate after the government announced measures at the end of October, including a buyer's stamp duty, to cool down the housing market.

Buying sentiment was fuelled further when Chief Executive Leung Chun-ying did not announce any measures to regulate the investment market in his first policy address last Wednesday, Lau said.

Sales of new office properties rose 52 per cent year-on-year to HK$17.59 billion in 2012, according to Centaline Property Agency, the highest sales value on record since it began monitoring office transactions in 1996.

In the absence of any further policy risk, investor sentiment towards office and commercial properties would continue to improve, said Ringo Lam Chun-chiu, valuation director of surveyors AG Wilkinson & Associates.

Lau said his firm helped a buyer clinch a deal for HK$28.17 million, or HK$18,000 per square foot, just a few days after the policy address. The investor was able to move quickly once policy uncertainty was removed.

"Many investors who previously invested in residential real estate are now interested in office properties sized from about 1,000 sq ft, or priced at a lump sum of around HK$20 million," said Lau. The market was also helped by an anticipation of a rebound in office demand and improved rent.

In a research report released yesterday, investment bank Morgan Stanley said it expected a better outlook for the office market this year on the back of a recovery in the local economy and tighter supply, while policy risks still loomed for residential space.

"We expect office rental to grow by 10 per cent in 2013," Morgan Stanley said.

It estimates that new supply of grade-A office space is likely to drop to around 0.9 million square foot per annum in 2013-14, from 1.4 million sq ft in 2012. Almost all of the new supply is slated to be in secondary areas, with new space in Central amounting to only 0.04 million sq ft, it said.

With growing demand, Billion Holdings Group is planning to sell its three office properties in Kowloon East on strata title. Agents said K Wah International was also considering selling its office building in Tsuen Wan at an intended asking price of HK$10,000 per sq ft.

Earlier this month, Soundwill Holdings sold 29 shopping units in The Sharp in Causeway Bay. On the first day of releasing the units, these were sold at an average price of HK$33,578 per sq ft.

Agents said some individual buyers had already offered the units for resale at asking prices some 30 per cent higher than they paid.

"With the investment yield on commercial property below 3 per cent, the investment frenzy is supposed to slow down," said Patrick Chow Moon-kit, a research head of Ricacorp Properties.

But given limited investment channels and strong liquidity, interest in the sector remained high despite the low returns on offer, he said.