Hong Kong's rooftops, signboards offer higher rental yields, say property agents

Rooftops properties with signboard potential offer higher rental yields than other types of commercial real estate in Hong Kong, but buyers should be wary of risks, according to industry observers.

Over the past three years there were a number of transactions involving rooftops with signboards, including The Star House, famously rented by insurance company Prudential, and AXA Centre. Both sites offer unobstructed harbour views.

Daniel Mok, local director of capital markets at JLL, said these unique properties attract cash-rich investors who want to enjoy stable rental income without frequent maintenance.

Mok said rooftop properties are also enjoying strong interest from start-ups and other companies with an adventurous streak for trying out new event venues.

“Depending on the market needs and trend, there would be a higher demand,” he said.

Buyers for this kind of investment are usually cash-rich investors since financing may not be available, said Antonio Wu, deputy managing director of capital markets and investment services at Colliers.

“In some cases, end users may consider buying for their own use but most end users prefer to rent since not every company has the capex and renting is more flexible,” Wu said.

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Thomas Lam, head of valuation at Knight Frank, agreed that demand is strong for quality rooftops.

“High prices are supported by buyers. Many buyers are Chinese and multinational companies, particularly insurance companies, that would like to improve or reinforce their company image, market position or do brand building,” Lam said.

“Chinese buyers were happy to pay a premium to purchase bloc office buildings with quality rooftop signboard or the potential to build one,” Lam said.

Mok agrees high prices are well supported.

“Rooftop investments have a comparatively lower price per square foot and need a smaller lump sum compared to other real estate properties,” he said.

Wu added that the yields were attractive, yet the asset class is particularly exposed to cyclical economic downturns.

“Most companies renting the signs are for consumer products, the profits of which will be affected by the retail sales market or the overall economy,” Wu said.

But a dearth of high return properties helps explain the rise of rooftop properties as a favoured investment, Wu said.

Rooftop signage property tends to provide a higher rental yield than other types of real estate properties. For example, commercial and residential properties tend to yield around 2 to 2.3 per cent, while industrial properties fetch around 3 to 3.5 per cent.

However, harbour-view rooftops can yield as much as 6 per cent, an industry source said.

“Rooftops and signboards are expensive since they are mainly for advertising purposes,” Lam said.

“Take the rooftop on Star House in Tsim Sha Tsui as an example, it changed hands for HK$218 million (US$27.86 million) in 2015 and its annual rental income is HK$17.5 million, achieving a rental yield of 8 per cent,” Mok said. “But of course, it is because Star House is highly visible from across the harbour. Such a high yield is not always the case.”

Still, investors are keen to invest into hard assets, such as car parks or signage properties, Wu said.

Meanwhile, rooftops can act as an alternative investment, since it provides attractive rental income subject to restrictive use.

“Rooftop signboard has been an investment product in Hong Kong for many years. Those in good locations are already owned for long term investment or advertising purposes,” Lam said.

“Not all buildings can have signboards installed due to technical issues. So supply in good and unique location, usually along Victoria Harbour, is very limited,” Lam added.

Apart from advertising, rooftops can also be considered as an add-on, offering extra space for parties and corporate functions.

Rooftops that lack unobstructed harbour views tend to be used as shared public areas, and are rarely owned by single investors.

“Most of them serve as lift slots, mechanical floors, or are left obsolete or as storage space. There are also restricted uses for rooftops; for example, they cannot be part of an enclosed area or unauthorised construction. Still, some owners renovate the roof and rent it out as an open door event venue,” Mok said.

The market for rooftops can be hard to value because of lack of standardisation.

“Every rooftop is unique, depending on view, size and building height,” Lam said.

“But definitely there is a price premium between rooftops with and without signboards, depending on current signboard income or advertising potential,” said Lam.

Buyers should bear in mind that before they purchase a rooftop for signage or hoarding purposes, the height limit of the building should be taken into account.

Owner should also be aware if the plans for alternations have been submitted to the Buildings Department, industry sources said.