Hong Kong property investment soars on lower funding costs, rising demand

Hong Kong’s commercial property market attracted US$1.6 billion in investment in the first quarter, up 41 per cent from a year earlier, as demand for office, retail and hotel assets picked up amid improving liquidity, according to JLL. Investment volumes could receive a further boost from global investors looking to redeploy their capital amid the conflict between the US, Israel and Iran, the property consultancy said in a report on Tuesday. “With Asia increasingly perceived as a relatively stable and defensive investment destination, institutional investors from the Middle East may rebalance portfolios with greater capital allocation to the region,” JLL said. “Hong Kong stands to benefit as one of the key recipients of this capital inflow.” The investments in the January to March period were spurred by “increased liquidity in the office sector, with asset prices in core locations approaching a near-term floor [and a] pickup in retail activity as Chinese end users made acquisitions”, JLL said. Peer CBRE, meanwhile, tracked HK$12.3 billion (US$1.57 billion) in investment in the segment in the same period, up 105 per cent from a year earlier, driven by demand from educational institutions and end users. The number of deals in the quarter rose 26 per cent from a year earlier to 29, including 14 distressed assets worth a combined HK$8.7 billion, “as sizeable discounts succeeded in luring private investors and developers”, CBRE added. Major transactions in the period included the University of Hong Kong acquiring an under-construction office building in Connaught Road West, Sheung Wan, for HK$3.8 billion, and Dah Sing Bank buying 10 floors of Viva Place in Wong Chuk Hang for HK$839 million, according to CBRE. Hotels continued to attract investment, as institutional investors targeted student-hostel conversion opportunities. Centaline Investment bought Regal Oriental Hotel in Kowloon City for HK$1.5 billion, while CR Longdation acquired Hotel COZi ‧ Oasis in Kwai Chung for HK$954 million. These investments came amid a decline in one-month Hibor or Hong Kong interbank offered rates. The benchmark, on which mortgages and corporate borrowing rates are usually based, fell to 2.28 per cent at the end of March, compared with 3.08 per cent at the end of December. This decline in Hibor helped improve the negative yield carry associated with some commercial properties in Hong Kong, CBRE said. “Signs indicate the gradual return of professional investors, and if this trend continues, it suggests a higher investment volume in the future,” said Reeves Yan, executive director and head of capital markets at CBRE Hong Kong. “In addition to the opportunistic demand from local end users and long-term investors for heavily discounted assets, professional investors, including some property funds, have continued to focus on growth opportunities in the education sector.” Interest was also likely to persist for hotels and residential buildings that could be converted into student accommodation, and other commercial facilities that could be used for educational purposes, he added.