Schroders Sells Kowloon Office Tower for $45M as Hong Kong Opens Up

British asset management giant Schroders has sold a 15-storey office tower in Hong Kong’s Mong Kok area for HK$350 million ($44.8 million), more than three years after the property went on sale for double the price, according to local news reports and industry insiders.

Dubbed HQ, the roughly 38,228 square foot (3,551 square metre) building at 450-454 Portland Street changed hands on Monday for the equivalent of HK$9,155 per square foot, agency data shows.

The Hong Kong-based real estate investment manager formerly known as Pamfleet acquired the asset for HK$349 million in 2015, before the company became part of Schroders in 2020. Mingtiandi can confirm the transaction, which was reported earlier by the Hong Kong Economic Times.

Although the buyer’s identity has not been confirmed, the newspaper claimed that the buyer is locally based real estate investment firm Vervain Resources, which was formerly known as Nan Fung Resources. The sale of the 95 percent occupied, grade A building in Kowloon comes at a time when the area’s office market is showing signs of bottoming out and the reopening of the border with mainland China is poised to boost leasing demand.

Asking Price Slashed in Half

After purchasing the property then known as Bing Fu Commercial Building in 2015, Pamfleet is believed to have invested tens of millions of Hong Kong dollars in renovations, including upgrading the lobby and entrance, and repositioned the building to align with the city’s growing education industry.

The company reportedly put HQ on sale in 2019 with an asking price of HK$780 million, before lowering the price to about HK$600 million last year, according to the Hong Kong Economic Times. Representatives of Schroders declined to comment on the reported transaction, with Knight Frank understood to have advised on the deal.

Completed in August 1991 and located within the bustling Prince Edward commercial hub, HQ is occupied by a variety of tenants, including educational and religious organizations. The building sits on a 3,192 square foot site, about 400 feet from the Prince Edward metro station.

Asking rents start at HK$44.61 per square foot in the colourfully styled building, which has energy-efficient features, child-friendly washrooms, and floor plates ranging from 2,213 to 3,171 square feet, along with flexible unit sizes measuring 580 square feet and up.

HQ has received approval from the city’s Buildings Department for redevelopment into an 84-guestroom hotel, according to Knight Frank, which was appointed as the sole agent for the sale of the property last October, with Willis Mak and Sanford Yeung handling the sale.

Hopeful Sign for Hong Kong

The reported buyer, Vervain, has a portfolio that includes residential and commercial assets, mostly in prime locations in Hong Kong. The company also invests in gateway cities abroad and engages in property development and asset enhancement.

Vervain’s existing office portfolio in Hong Kong includes 8 Wyndham Street and The Wellington at 198 Wellington Street, both in Central. The company developed the 8 Deep Water Bay Drive super-luxury residential project in conjunction with Nan Fung Group and had previously invested in Chinese real estate through InfraRed NF, a joint venture with British investment firm InfraRed Capital Partners.

Schroders, which managed $990.9 billion of wealth and investments as of year-end 2021, bought a majority stake in Pamfleet in 2020, with Andrew Moore staying on as chief executive of the Asian real estate fund management business. The firm has hired CBRE to market the three-storey retail podium of the Harbourfront Landmark residential complex in the Whampoa section of Kowloon city, with a total floor area of 77,000 square feet, which a Pamfleet real estate fund acquired for HK$1.1 billion in 2018.

The sale of HQ can be seen as a sign of renewed interest in Hong Kong office assets just over a week after the reopening of land and sea crossings between the city and mainland China, following Hong Kong’s lifting of most international travel restrictions in late 2022.

Knight Frank observes a growing divergence between market conditions on Hong Kong Island and Kowloon, with overall net effective rents dropping 2.1 percent on the island in December compared to the previous month, according to a recent market report. In Kowloon, however, office rents remained stable with electronics and sourcing companies playing a key role in driving demand.

“In the short term, we expect the Kowloon market to remain weak, but see signs of it bottoming out,” the brokerage argued, adding that rents in Kowloon are expected to grow slightly by 0 to 3 percent in 2023 as mainland and multinational tenants return.