No sign of slowing down in HK commercial property market

HONG KONG • You know a property market is overripe when new supply keeps setting price benchmarks, but existing buildings find few or no takers. That’s undoubtedly the case in Hong Kong housing, where a three-month-long slump in secondary-market transactions is flashing a warning sign for owners of shoebox-sized apartments in the world’s least affordable city.

But on the flip side, offices are booming, thanks to Chinese demand. The reason the city’s commercial property market poses no such anxiety for investors lies in blockbuster deals that won’t dry up.

Less than a week after Goldman Sachs Group’s cheery report on the territory’s office market comes a HK$40.2 billion (S$7 billion) deal for The Center, said the Hong Kong Economic Journal yesterday. If the unidentified Chinese buyers do pay that much for the 75 per cent stake held by tycoon Li Ka Shing’s CK Asset Holdings, it will be the most expensive single-tower deal and the latest in a string of mainland firms buying property in the city.

Until the sale, the most expensive office property to change hands was the HK$23.3 billion purchase of a carpark site in May by Hong Kong’s Henderson Land Development.

The transaction would also be an early endorsement of what Goldman calls three mega trends: Demand for space from the Chinese financial, insurance and real-estate industries as China continues to liberalise; an overall push for mainland companies to go global, even as some high-profile firms are reined in due to excessive leverage; and the development of the so-called Greater Bay Area. Premier Li Keqiang used that term in March to describe an urban cluster connecting Hong Kong and Macau with China’s Guangdong province.

The 11-city agglomeration produced US$1.3 trillion (S1.8 trillion) in goods and services last year and is home to nine times as many people as the San Francisco Bay Area, said the South China Morning Post.

Will integration make Hong Kong the Jewel of the Bay, as Goldman puts it? Or will it rob the city of the special characteristics that let it function as a global financial centre? Those are important questions for Hong Kong’s future, but as The Center deal shows, Chinese office buyers are not standing by for answers. Half of new leasing demand in the city’s central business district now comes from mainland firms, compared with 18 per cent in 2011.

Then there’s supply. Hong Kong’s residential property market is dominated by project launches. But, unlike in Singapore, there are not many new office towers springing up. With 1.7 per cent vacancy rates in Hong Kong’s Central district (compared with more than 12 per cent for private offices in Singapore), and plenty of generous tenants from across the border, this office market is not going to slow anytime soon.