Hong Kong 2023 commercial property transactions breach 2022 levels

Transactions in 2023 totalled HK$31.1 billion.

In a recent report, Savills said 2023 ended on a high note with two mega end user deals being concluded in Hong Kong: Security and Future Commission (SFC), a quasi government body, bought the nine floors they currently leased, plus three adjacent floors (total of 296,000 sq ft) in One Island East for HK$5.4 billion (HK$18,200 per sq ft). 

Meanwhile, Li Ning, a Mainland sportswear retailer, purchased the en-bloc office of Harbour East in Island East (144,000 sq ft) for HK$2.2 billion (HK$15,333 per sq ft), reported to use part of the building as their headquarters in Hong Kong. 

“Both vendors (Swire and Henderson) were not in any sort of distress and the two deals reflected there were end users willing to pay current market prices to purchase quality office asset suitable for their owner-occupation,” the report said.

Here’s more from Savills:

With these two deals concluded, total en-bloc / major commercial transactions for 2023 surpassed the levels of 2022 by 16% YoY, with HK$31.1 billion worth of properties changing hands. Office assets represented the lion share (60%) despite continuous declines in both prices and rents, reflecting a possible increase in end users’ (and in some very rare cases, investors’) appetite to bargain-hunt in this falling sector.

Hotel and retail properties, the two sectors supposed to benefit the most from border reopening, only represented 34% (slight above HK$10 billion) of major transactions. The industrial sector almost drew a blank in most of 2023, but registered two major deals towards the end of the year, namely CR Logistics buying another Kerry’s warehouse, this time in Fanling, for HK$1 billion (HK$3,800 per sq ft). 

Blackstone partnered with StoreFriendly again to purchase another en-bloc industrial building in Tsuen Wan for around HK$560 million (HK$4,000 per sq ft), to be converted into a self-storage premises. Nevertheless, total volume of industrial transactions still only reached HK$1.9 billion in 2023, a marked decrease of 88% from HK$15.1 billion last year.

The US Fed has recently indicated its intention to implement three rate cuts in 2024, with the aim of bringing the US Fed Fund Rate to a range between 4.25% and 4.5%. This move is expected to provide some relief in terms of the cost of funds for commercial real estate (CRE) loans, particularly those based on HIBOR.

Nevertheless, such rate cuts may only be realized towards the second half of 2024, meaning the local CRE market would continue to face high interest rate environment at least over the next six months. With office and retail rents both drifting, investment interests for commercial assets would be hard to come by and we expect the investment market to be yet again dominated by cash rich end users looking for suitable premises in this difficult market. 

On the other hand, high-yielding properties with stable incomes (usually suburban retail premises with 6%+ yields) or niche products with a dissimilar demand profile to usual commercial properties (such as student housing and co-living premises) may still attract interests from genuine long-term investors.