Chinese financial players shake up Hong Kong office market

Champion Real Estate Investment Trust

02/03/2016 23:00

* Mainland financial firms taking over premier office space 
in HK 
    * Office space used to belong to major international firms 
    * Uptake has to do with Chinese financial policies 
    * Consultants expect landlords to see 5-10 pct rental price 
jump 
 
    By Clare Baldwin 
    HONG KONG, March 3 (Reuters) - Mainland Chinese financial 
institutions have expanded their physical footprint in Hong 
Kong's prime business district at their fastest pace in five 
years, driving up rents and underscoring how Beijing's policies 
are reshaping the city. 
    While international firms are consolidating and re-locating 
offices to save money, Beijing is pushing on with plans to draw 
the former British colony into a Pearl River Delta mega-economy 
- and China's financial institutions are leading the way.  
    Policies such as the Shanghai-Hong Kong stock connect and 
mutual funds recognition schemes point towards greater 
integration, and with it the sort of landmark purchases that 
Chinese companies have made in other financial capitals like 
London and New York.     
    "Ultimately, there will be more mainland Chinese firms in 
Central," property consultant Jones Lang LaSalle's head of Hong 
Kong research Denis Ma said, referring to Hong Kong's glittering 
central business district.    
    "All of the high marks in the rental market, especially in 
Central, are being set by (mainland Chinese) companies."  
    Jones Lang LaSalle forecasts prime office rents in the 
Central business district will jump 5-10 percent this year, even 
as China grapples with its slowest economic growth in 25 years 
and tumultuous stock and currency markets. 
    Even though Hong Kong is officially part of China, it has a 
separate financial and legal system and the influx of mainland 
companies into the semi-autonomous southern territory is part of 
Beijing's push to get Chinese companies to expand overseas.  
    China's outbound M&A activity hit a record $113 billion last 
year, while its financial institutions snapped up landmark 
properties abroad including the Waldorf Astoria and Baccarat 
hotels in New York and an office tower in London. 
 urn:newsml:reuters.com:*:nL1N0VL286 urn:newsml:reuters.com:*:nL4N0V21JN 
    Chinese banks have also been opening branches abroad after 
their government simplified approval procedures.  urn:newsml:reuters.com:*:nL3N0U82Z7  
    Widespread expectations of a greater yuan depreciation are 
another push-factor - even though the central government has 
dismissed such concerns - as companies seek legal channels to 
park money abroad.  urn:newsml:reuters.com:*:nL3N1532DW 
    Property consultant Knight Frank said mainland Chinese 
demand last year accounted for as much as half of new leases in 
Central, home to the Asia headquarters of global bank HSBC 
Holdings  HSBA.L  and the city's stock exchange. 
    Mainland firms remained "the pillar of leasing demand" for 
Hong Kong's best office space, it said, with premium Central 
office rents jumping 11.5 percent in the year to January 2016. A 
Hong Kong government index shows office rents in Central and the 
nearby area of Sheung Wan rose 11.7 points last year.  
     
    WINNERS AND LOSERS 
    Landlords such as Sun Hung Kai Properties Ltd  0016.HK , 
Henderson Land Development Co Ltd  0012.HK  and Cheung Kong 
Property Holdings Ltd  1113.HK  are among the big winners from 
the influx. 
    The losers are foreign forms that have been edged out of 
prime locations by Chinese brokerages, investment firms and 
Chinese banks, including smaller ones that have filed listing 
applications with the Hong Kong Stock Exchange. 
    Last year, Zhong Zhi Capital took over Barclays Plc's 
 BARC.L  office space, according to Savills, ahead of the UK 
bank's announcement of sweeping cuts at its investment bank and 
the closure of its Asian cash equities business.  urn:newsml:reuters.com:*:nL3N15517Q 
    State-owned China Everbright Group took over office space 
previously occupied by Wells Fargo & Co  WFC.N  and investment 
conglomerate Fosun stepped into some of HSBC Holdings Plc's 
 HSBA.L  former office space, according to the consultancy's 
data. The offices that the Chinese firms moved into - in the 
Cheung Kong Center, AIA Central and the Citibank Tower - are in 
premium central locations.  
    Jones Lang LaSalle data shows Chinese demand for office 
space in Hong Kong's Central district has more than doubled in 
the past six years, accounting for a fifth of all Grade A 
Central office space. In another six years, the consultancy 
expects it to account for more than a quarter.  
    Last week, China Everbright Ltd  0165.HK  announced plans to 
buy the Dah Sing Financial Centre in Wan Chai for HK$10 billion  
($1.29 billion). That followed whole-office building purchases 
last November by Evergrande Real Estate Group Ltd  3333.HK  and 
a China Life Insurance Group Co subsidiary. 
     
($1 = 7.7725 Hong Kong dollars) 
 
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Chinese demand for Hong Kong office space    http://tmsnrt.rs/1Q4onHO 
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 (Reporting by Clare Baldwin; Additional reporting by Michelle 
Chen, Saikat Chatterjee, Elzio Barreto and Denny Thomas; Editing 
by Anne Marie Roantree and Stephen Coates) 
 ((Clare.Baldwin@thomsonreuters.com; + 852 2843 6571; Reuters 
Messaging: clare.baldwin.thomsonreuters@reuters.net)) 
 
Keywords: HONGKONG FINANCIAL/PROPERTY