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Easy for Hongkong Land to find replacement for tenant HNA: DBS

PC Lee
PC Lee • 2 min read
Easy for Hongkong Land to find replacement for tenant HNA: DBS
SINGAPORE (Sept 20): China-based HNA Group reportedly surrendered eight floors at Three Exchange Square in Hongkong’s Central with lettable area of 88,000sf.
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SINGAPORE (Sept 20): China-based HNA Group reportedly surrendered eight floors at Three Exchange Square in Hongkong’s Central with lettable area of 88,000sf.

This move should not surprise the market as this conglomerate has been reducing its business operations in Hong Kong in the previous year.

The 33-level Three Exchange Square office tower was developed by property group Hongkong Land and houses the Hong Kong Stock Exchange.

HNA’s lease started in June and should have expired in May 2027.

According to press reports, China Merchants Bank has agreed to take up four floors for business expansion based on market sources. Reportedly, new monthly rent reached HK$160psf, about 15% higher than those currently paid by HNA.

This reflects sustained leasing demand for Central office space among Chinese financial institutions, says market watchers.

According to Jones Lang Lasalle, office vacancy in Central remained tight at 1.5% in Aug. With solid demand from Chinese firms on one hand and tight vacancy on the other, it should not be difficult for the market to absorb the remaining space surrendered by HNA.

“Hongkong Land is trading at 45% discount to our assessed current NAV. Valuation sounds inexpensive from the historical perspective. And Central office market remains in good shape,” says DBS analyst Jeff Yau in a Wednesday report.

Year to date, units in Hongkong Land are down 3.8% at US$6.79 or 15 times FY19F earnings.

DBS has a “buy” on the stock with target price of US$8.57.

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