Hong Kong’s commercial real estate market is experiencing significant turbulence due to a combination of high interest rates, shifting consumer habits, and broader economic challenges. One notable case is the Cubus building in Causeway Bay, a mixed-use tower that has been put up for sale due to financial difficulties. The building’s owners, including Phoenix Property Investors and a business entity linked to Sa Sa chairman Simon Kwok, are struggling with debt repayments after a sharp decline in rental income. With over a third of the building’s floors vacant, the property was recently listed for sale at HK$1.4 billion (US$180 million), a significant drop from its peak valuation of HK$2 billion.
The situation with Cubus reflects the broader challenges faced by Hong Kong’s commercial real estate sector. High vacancy rates, falling rental income, and dwindling demand from global firms and mainland Chinese visitors have driven down property values across the board. Grade A office rents have fallen by 38% since their pre-pandemic high, while the retail sector has been hit even harder, with property valuations down by about 40%.
This market-wide slump has forced many property owners into distressed sales, with nearly 75% of commercial real estate transactions this year falling into this category. Banks, long a key source of financing for the heavily-leveraged sector, are now grappling with rising defaults. For example, HSBC reported US$3.2 billion in commercial real estate loan defaults in the first half of 2024, a six-fold increase compared to the previous year.
Despite some relief from a recent U.S. Federal Reserve rate cut, the underlying economic fundamentals remain weak, and experts do not anticipate a market recovery anytime soon. Analysts suggest that it could take until 2025 for the market to stabilize, with demand still tepid, supply abundant, and investor confidence shaky.
While larger, more established developers may be better equipped to weather the downturn, smaller firms and highly-leveraged companies are struggling under the weight of their debt. The overall outlook for Hong Kong’s commercial property market remains bleak, with few signs of immediate recovery.
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This article was originally published by the South China Morning Post (SCMP), which has been the most authoritative voice in reporting on China and Asia for over a century. To read more SCMP stories, please visit the SCMP app or follow them on Facebook and Twitter.
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