Empty desks

Just five years ago, sales of Hong Kong office blocks were smashing records. Now lenders are wary of refinancing existing projects as property owners struggle to fill desks.

In 2018, a floor in Admiralty district’s Far East Finance Centre sold for around US$7,600 per square foot, the highest price so far. The same year, one of tycoon Li Ka-shing’s companies completed the sale of a majority stake in 73-storey office building The Center for a record-breaking US$5.2bn.

Those days seem distant now. Hong Kong remains one of the world’s most expensive property markets, but prices have come under pressure in recent years, largely in reaction to government policies.

This year, the Hong Kong government added clauses to land sales and short-term lease tenders, allowing it to disqualify bidders for reasons connected to the wide-ranging National Security Law introduced in 2020. Property stocks sank on the news.

Prices for private homes in the city dropped more than 15% in 2022, the first decline for 14 years, as people packed up and left – some fed up with the city’s onerous pandemic-era restrictions, and some concerned about the erosion of personal freedoms.

That backdrop is making refinancings for Harbourside HQ and The Executive Centre more challenging, with Hong Kong’s Grade-A office vacancies at an all-time high of 12.4%. It doesn’t help that the usual tenants, like banks, are cutting headcount.

Hong Kong has tried to revive the market by increasing the loan-to-value ratio for non-residential properties to 60% from 50%, but that won’t work if banks have their own reasons for not wanting to lend.

Banks have already suffered hefty writedowns on their exposure to property in mainland China over the past two years. They won’t want to write outsize tickets for Hong Kong property loans, except for top-tier names, now that the market is no longer a one-way bet.