In Hong Kong’s commercial real estate market, ‘everybody has their own fair share of pain’

In the second of a two-part series, Jiaxing Li, Aileen Chuang and Salina Li explore the effects of high interest rates and other factors on the city’s commercial property market.

In the heart of Causeway Bay, a bustling Hong Kong shopping district that was once a more expensive retail destination than Fifth Avenue in Midtown Manhattan, a commercial building with shaky financing was recently thrust onto the market.

Cubus, a mixed-use building hosting tenants including high-end sushi restaurants and hair salons, was put up for sale last month. Owners of the 25-storey building, including local real estate fund Phoenix Property Investors and an entity related to retail chain Sa Sa’s chairman Simon Kwok, obtained a loan from lenders led by Bank Sinopac, but have been grappling with debt repayments amid a decline in rental income.

As the due date nears, the owners are feeling pressure to sell the building so they can repay the money. The public tender process for the tower, which at present has more than a third of its floors vacant, started last month with an opening price of HK$1.4 billion (US$180 million) – nearly 30 per cent lower than its peak valuation of HK$2 billion.

Cubus is just one building in the city’s vast commercial real estate (CRE) market that is currently engulfed in turmoil. A key pillar of the local economy that propelled tycoons like Li Ka-shing and Lee Shau-kee into the pantheon of the world’s uber wealthy, the market has buckled under the crushing weight of China’s economic malaise, a change in Hongkongers’ consumption habits, an exodus of global firms fleeing due to geopolitical tensions and draconian Covid-19 controls, a supply glut and high interest rates that have just started to come down.

The fallout has reached far and wide, burning everyone from real estate moguls to savvy local investors, while banks are squeamish about lending and have been left holding a bag of bad debts – which are rising.