Three Exchange Square price tag: $16b

Hongkong Land plans to sell Three Exchange Square in Central for around HK$16.3 billion, Sing Tao Daily, sister publication of The Standard, has learned.

The Grade-A tower at the central business district has a gross floor area of 430,802 square feet and the developer is asking for HK$38,000 per sq ft, according to Sing Tao.

It is believed that declines in expected rents and selling prices are among the reasons behind Hongkong Land's move to dispose of the 33-level, 35-year-old building.

Hongkong Land, under British multinational conglomerate Jardine Matheson, declined to comment on "market rumors."

Tenants of the 142-meter-high tower mainly comprise banks, insurance companies, and fintechs.

There are four units at the property on 8 Connaught Place listed on JLL's website for rental, with asking rents starting from HK$128 per sq ft. But PropWiser Consultants said leasing of the building was not as active as other Grade-A offices in Central.

The most recent rental deal was almost two years ago when a floor with an area of around 11,000 sq ft was leased out for HK$1.32 million, or about HK$120 per sq ft.

The square is one of Hongkong Land's 12 commercial buildings in Central, along with Chater House, Jardine House, the Landmark Mandarin Oriental, and One & Two Exchange Square, which is the headquarters of Hong Kong Exchanges and Clearing.

The office market has been under pressure since 2019 amid headwinds that include the social unrest, the pandemic, and an ample supply. It is estimated that at least seven million sq ft of Grade-A office space will come onto the market in the next few years, which would take years for the market to absorb.

The city's net absorption rate remained negative in the first half even after the border with the mainland reopened, pushing the total vacant space to another new high of 13.5 million sq ft, according to CBRE.

Overall vacancy rate inched up 0.4 percentage points to an all-time high of 15.7 percent by the end of June, the property consultancy said in a report earlier.

All these led to a 30 percent drop in office rents from the peak in 2019, JLL said.

While the office portfolio of Hongkong Land - the biggest landlord in Central - remained resilient with a vacancy rate of 6.2 percent as of the end of June, compared to the average rate of around 10 percent in Central, it had jumped from 4.7 percent from last year.

Rents also dropped to HK$107 per sq ft from HK$112 and HK$111 in the first and second halves of last year, respectively, the company said in its earnings release.

Still, more skyscrapers like The Henderson and Cheung Kong Center II are being built in the district by peers including CK Asset and Henderson Land Development, which would weigh further on the rents of the office market.

That does not even include Site 3 of the New Central Harbourfront which was awarded to Henderson in 2021 for a record HK$50.8 billion. It is expected to provide a total of 610,000 sq ft of office space in two phases through 2032.

The proposed disposal by Hongkong Land might be deja vu to some people, especially considering it and parent Jardine's exit before the handover. The two firms shifted their listing venue to rival hub Singapore before 1997, a move seen as a rebuke to the future of Hong Kong and the mainland.

Although its presence in China is much less than Swire, the other remaining British trading house in the city, Hongkong Land still has four retail centers in the mainland, including a luxury retail center at Wangfujing in Beijing, its website showed.