ASIA NEWS: Mainland assault

Mainland Chinese companies’ assault on Hong Kong property continues.

Last month, the financial services firm China Everbright acquired the Dah Sing Financial Centre, a landmark office tower located on the fringes of the central business district in Wan Chai, from SEA Holdings. At a sale price of HK$10 billion (€1.16 billion; $1.29 billion) the office tower has now become the second most expensive office tower in the island-city.

Just last November, mainland property developer Evergrande paid a record HK$12.5 billion to take control of the MassMutual Tower.

Chinese developers have been aggressive buyers of Hong Kong commercial properties and government-owned land sites for residential development since late last year. However, the deal by China Everbright is a clear sign that other Chinese corporations have now entered the fray too.

A note released by Colliers last month called the “penetration of big mainland firms in the Hong Kong office sector an unstoppable force.” JLL went so far as to call Chinese companies the “pillar of leasing demand” for prime office space. Indeed the property consultancy has estimated that Chinese firms currently account for a fifth of all Grade A assets in the city’s Central district.

In the recently announced land sales program for the current fiscal year, the government said a car park site in Central would soon be up for auction. The site – pegged to be the first commercial space available in the district in the last 20 years – is also expected to attract many bids from Chinese corporates. The car park, spread over a gross floor area of 449,000 square feet, is reportedly expected to trade for more than HK$9 billion.

A Hong Kong-based fund manager agreed that some of these asset sales reflect a pricing premium, and the demand is contributing to rising rents in the premium grade office market. However, in his view, it is still “small money” for these large Chinese corporations.

“I don’t think they are doing IRR calculations. They see Hong Kong as a major financial market and they just want to have a presence no matter the price,” he said.

The trend is largely being driven by the corporations’ attempt to consolidate and relocate their operations. China Everbright will eventually move into the 39-story Grade A office building once the current tenant leaves. In other cases, industry observers say an uncertain economic climate in the home market, particularly the volatility in the RMB and fears of a further devaluation, is a major factor prompting firms to shift their base to the neighboring financial hub and park capital in other markets.