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Mainland firms’ presence in HK Central set to rise
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CHINESE mainland 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 China’s policies are reshaping the city.
While international firms are consolidating and relocating offices to save money, China is pushing on with plans to draw Hong Kong into a Pearl River Delta mega-economy — and mainland financial institutions are leading the way.
Policies such as the Shanghai-Hong Kong Stock Connect and mutual funds recognition schemes point toward 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 Chinese mainland 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) 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.
Outbound M&As hit record
Even though Hong Kong is part of China, it has a separate financial and legal system and the influx of mainland companies into the city is part of Beijing’s push to get the companies to expand overseas.
China’s outbound M&A activity hit a record US$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.
Chinese banks have also been opening branches abroad after the government simplified approval procedures.
Expectations of a yuan depreciation are another push-factor — even though the central government has dismissed such concerns — as companies seek legal channels to park money abroad.
Property consultant Knight Frank said Chinese mainland demand last year accounted for as much as half of new leases in Central, home to the Asia headquarters of global bank HSBC 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. A Hong Kong government index shows office rents in Central and the nearby area of Sheung Wan rose 11.7 points last year.
Landlords such as Sun Hung Kai Properties Ltd, Henderson Land Development Co and Cheung Kong Property Holdings Ltd are among the big winners from the influx.
The losers are foreign firms 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 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.
China Everbright Group took over office space previously occupied by Wells Fargo & Co and investment conglomerate Fosun stepped into some of HSBC Holdings Plc’s 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 showed mainland demand for office space in Hong Kong’s Central district has more than doubled in the past six years, taking up a fifth of all Grade A Central office space. In another six years, the consultancy expects it to account for over a quarter.
Last week, China Everbright unveiled plans to buy Dah Sing Financial Centre in Wan Chai for HK$10 billion (US$1.29 billion). That followed whole-office building purchases in November by Evergrande Real Estate Group Ltd and a China Life Insurance Group Co subsidiary.
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