Citigroup Inc. paid a record HK$5.4 billion ($697 million) to a unit of Wheelock & Co. for a Hong Kong office tower that will bring most of its 5,000 employees in the city under one roof.
The price for the 512,000 square-foot property in the Kowloon East district is the largest ever office transaction in Hong Kong, the New York-based bank said in a statement yesterday. The tower, scheduled for completion by the end of 2015, will be used to house staff currently spread out across offices in the city, said Weber Lo, the bank’s chief executive officer for Hong Kong and Macau.
Citigroup’s purchase may mark a return of investment demand in Hong Kong’s office market as falling vacancies and high rents pose a challenge for companies seeking large office spaces. Banks and insurers, including Agricultural Bank of China Ltd. and Manulife Financial Corp., have bought buildings in the city, which is home to the highest office rents in the world after London, according to property broker Cushman & Wakefield Inc.
“The lack of supply in Hong Kong has been a challenge for many large occupiers, such as Citi, who are in Hong Kong for the long term,” said Sigrid Zialcita, managing director of research for Asia-Pacific at Cushman & Wakefield in Singapore. “Hong Kong has not lost its luster as a regional financial hub, even with competition from Singapore and Shanghai.”
The overall vacancy rate in Hong Kong fell for a second consecutive quarter in the first three months this year, to 3.6 percent, according to CBRE Group Inc., which advised on the transaction. Office rents in Central may drop as much as 5 percent this year on increased demand from mainland Chinese firms and an improved economic outlook, the realtor said.
Citigroup is paying about 20 percent more for the Kowloon tower than Manulife, which paid HK$4.5 billion last year to Wheelock for a similar-sized block at the same development, called One Bay East. The waterfront district where the two towers are located, formerly an industrial zone, is earmarked by the Hong Kong government as an alternative financial hub.
Central is Hong Kong’s main financial district, where banks including HSBC Holdings Plc and Goldman Sachs Group Inc. have their regional headquarters. Agricultural Bank, a Beijing-based lender, paid HK$4.9 billion in 2012 for a 28-story office building near Central.
“There aren’t many banks historically that have bought their real estate,” said Ben Dickinson, head of Hong Kong markets at broker Jones Lang LaSalle Inc. “Most banks in Hong Kong prefer to retain the flexibility leasehold occupation offers them. It’s going to be interesting to see if it changes the perception for occupiers in Hong Kong whether more people will look at purchase.”
Wheelock shares fell 0.8 percent to close at HK$32.80 in Hong Kong, compared with the 0.1 percent drop in the benchmark Hang Seng Index.
Hong Kong is one of the eight markets in Asia where the bank generates more than $1 billion of revenue annually and has close to 5,000 employees, Citigroup spokesmanJames Griffiths said.
The purchase “underlines our belief and confidence in Hong Kong’s continued growth as a leading global financial center and hub for some of our core regional businesses,” Stephen Bird, Citigroup’s Asia-Pacific chief executive officer, said in yesterday’s statement.