Hong Kong property

Owners of world’s most expensive office tower The Center say Goldman Sachs got cheap rates and they want tenants who will pay more

Investors in Hong Kong’s The Center have not finalised plans for building, but say new tenants will be easily found

PUBLISHED : Thursday, 05 April, 2018, 3:33pm
UPDATED : Thursday, 05 April, 2018, 11:23pm

The new owners of The Center, the world’s most expensive office building, have said they want new tenants who will pay higher rents when global investment bank Goldman Sachs’ lease expires in December.   

“[Goldman Sachs] is paying rent well below market value,” said Pollyanna Chu Lee Yuet-wah, a co-founder of Kingston Financial Group, who has a 17 per cent stake in the HK$40.2 billion (US$5.15 billion) office tower.

Chu also confirmed that investors in the consortium that has bought the office tower had not yet finalised plans for the building. But, she said, “it is likely we will split the floors, with each investor owning various floors”. Each investor will have their own plans, and Chu said she was considering taking some of her floors for long-term investment purposes and for her own use.

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Goldman is the first big tenant to leave the building following its sale in November last year. Some analysts had suggested it would escape the uncertainty surrounding The Center’s new owners and their plans for the building. But the bank will move its back office from the 73-storey tower in Hong Kong’s Central district to a location in Causeway Bay when its lease expires.

The Center’s new owners are not perturbed about losing their top tenant. The bank leased four floors – the 30th, 32nd, 38th and 39th – totalling about 100,000 sq ft, for between HK$60 and HK$65 per square foot from CK Assets, according to Chu. 

“That is below market value,” she told the South China Morning Post over the telephone. 

Chu said she believed the market value of the building stood at between HK$80 and HK$100 per square foot.

Hong Kong’s most expensive office to lose first big tenant as Goldman Sachs set to move out

The new owners have not held any discussions with Goldman about renewing its lease, said Chu, as the purchase transaction will not be complete until May 1.

“But we cannot offer such a big space to them at such a low rent,” she said.   

“Due to limited supply in Central, I am confident we can find new tenants to move in,” said Chu, adding that she saw strong demand for prime office space in Hong Kong, thanks to massive mainland economic development programmes such as “The Greater Bay Area” and the Belt and Road Initiative

Already the most expensive city in the world to rent an office, Hong Kong’s offices are being snapped up by cash-rich mainland Chinese companies that are willing to pay for a location in Central. 

Last year, French international bank BNP Paribas moved most of its back office staff to a cheaper location in Quarry Bay on the opposite end of Hong Kong Island. The bank will, however, maintain offices in IFC Two. Goldman will also retain its office in the Cheung Kong Center in Central. 

Lo Man-tuen, another investor in The Center, told the Post on Thursday the rent being paid by Goldman was “too cheap” and could not reflect fair market value. 

China credit tightening won’t affect stake in HK$40 billion The Center, says Shimao’s Hui Wing-mau

In November, a consortium called the CHMT Peaceful Development Asia Property Group emerged as the buyer for The Center, and agreed to pay the world’s highest price for an office tower.

I am confident we can find new tenants to move in
Pollyanna Chu Lee Yuet-wah, co-founder, Kingston Financial Group

The biggest shareholder in CHMT was a little-known, state-owned company called China Energy Reserve and Chemicals Group, with a 55 per cent share. The remaining 45 per cent is shared by four Hong Kong investors: David Chan Ping-chi, Lo Man-tuen, Raymond Tsoi Chi-chung and Ma Ah-mok.

By February, China Energy had dropped out of the consortium, snared by the Chinese government’s crackdown on overseas acquisitions and delays in securing approvals to remit funds abroad. Chu and real estate tycoon Hui Wing-mau – also known as Xu Rongmao in his native Fujian province – stepped in to pick its share.

China Energy’s 55 per cent stake was split four ways, Chu told the Post in March. Hui, the founder of Shimao Properties, owns 20 per cent, while the remaining 18 per cent has gone to Ma and Lo, who already held stakes in the building.