(June 18th, 2022)
Transaction update
While the office leasing market continues to improve its sentiment with increasing volume of new leases, its rental is still flat. On the other hand, the sales and purchase market remains quiet but a couple of major sales deals were closed in May/June.
An office unit of 878 sf at the Star House in TST was sold for HKD13.8 million (or HKD15,718/sf). The other closed deal was at the Lippo Centre across the harbour at Admiralty where a unit of 1,000 sf was sold for HKD29.7 million (or HKD27,000/sf). This was a much better price than the unit sold in May at HKD23,500/sf. The above two transactions certainly cannot represent a sentiment change over the commercial sales market but they may be viewed as good indicators that these pricing levels are attractive to end users as to out understanding, both transactions are driven by end users. We will need to see more closures of similar deals to confirm the commercial market is coming to live again.
Our view
Meanwhile we do expect the Sales and Purchase (“S&P”) activities in the commercial market to stay quiet in the third quarter but our view remains positive in this market, on both the leasing and S&P transactions. Demand for office space will improve once business activities is recovering, probably after the pandemic is over. Investors may be cautious about the work from home (“WFH”) policies introduced by quite a few financial institutions/companies of which have led to their reductions in office space. WFH, however; is not without issues and these policies may change when business activities picking up again.
The more important question is then what business opportunities we expect to see in Hong Kong during the business recovery mode. Among all the positive factors, we just highlight a couple of major ones, in our opinion, for a brief discussion . The Greater Bay Area (“GBA”) concept could play a part here. GBA is a two-way traffic between Hong Kong and the other nearby eight cities creating a market size of 70 million people. One of the leading roles for Hong Kong in this concept is to serve as the financial centre for GBA. Players in GBA are expected to establish their presence in Hong Kong to take advantage of the financial services available here. Hong Kong no doubt will be able to take up this task easily as It is already one of the international financial centres. A good example of GBA opportunities is the newly set up GBA Airlines which is headquartered in Hong Kong.
Secondly, quite a number of Chinese companies are delisting from the New York Stock Exchange in the next twelve to twenty-four months. They may probably be potentially looking to re-list in Hong Kong or Singapore or both, either way, Hong Kong is expected to win a portion of these opportunities. Furthermore, for those Chinese companies who are looking to become listed in the US may think twice now before going ahead. Hong Kong may be a better candidate in their consideration to go public. Increasing interest rate is probably one of the major enemies to the property market but it is not expected to shoot up sharply.
Investors may still be looking for bargain deals in this segment but there has never been many around over the past two years. Players in the commercial property sector are usually financially strong investors who are not affected much by the economic environment or interest rate. They will just hold onto their investments rather than selling at lower prices during economic downturn. In view of the above factors, it is probably good timing to invest in this segment now when it is not so active.
