Swire Properties Reports Significant Loss

Swire Properties has reported a significant financial loss of HK$766 million ($98.5 million) for the year 2024, a stark contrast to a profit of HK$2.6 billion in the previous year. This reversal is largely attributed to ongoing challenges in the Hong Kong office market, where weak demand, high vacancy rates, and an influx of new supply have created downward pressure on rental prices.

Fair Value Loss in Investment Properties

The real estate division of Swire Pacific disclosed in its recent stock filing that it experienced a fair value loss on its investment properties amounting to HK$6.3 billion, reflecting an increase from HK$4.4 billion in 2023. This continuing trend has primarily affected its office properties in Hong Kong. The underlying profit—which excludes fluctuations in property value—also fell by 42%, landing at HK$6.8 billion, largely due to the absence of substantial property sales unlike last year's notable divestment of nine floors at One Island East.

Tenant Trends Amid Challenges

Despite these trying circumstances, Swire Properties' chairman Guy Bradley mentioned a “flight-to-quality” trend among tenants. This trend indicates that tenants are increasingly drawn to high-quality office spaces, such as those in Swire's newly launched projects—One and Two Taikoo Place and Six Pacific Place. "Pacific Place continues to attract top-tier tenants despite the challenging operating climate," Bradley stated.

Occupancy Rates and Revenue Impact

In terms of occupancy rates, the flagship Pacific Place complex registered a 95% occupancy by the end of December 2024, slightly down from 98% a year prior. Rental revenues saw a drop of 16% for the year due to decreased rental rates from new leases and renewals. The overall gross rental income from Hong Kong’s office portfolio declined by 7% to HK$5.1 billion. When excluding revenue from the previously disposed-of One Island East floors, the decrease was only 4%.

New Developments and Market Statistics

Swire's latest developments, Two Taikoo Place and Six Pacific Place, were reported to be 69% and 53% leased, respectively. Notably, the company received an occupation permit for Six Pacific Place in February 2024, allowing for tenant handovers of office floors to commence.

Market Overview and Future Outlook

Given the current statistics, JLL highlighted that the citywide Grade A office vacancy rate surpassed 13% by the end of 2024. However, Swire's steady occupancy was described by Bradley as a “very good defensive position” amid the prevailing market uncertainties.

JLL also noted a slight improvement in leasing sentiment towards the end of the year, as tenants in the fourth quarter occupied an additional 377,100 square feet compared to the space they vacated. Nonetheless, overall rents experienced a decline of 1.9% compared to the previous quarter, including notable drops of 2.8% in both Hong Kong East and Kowloon East.

Government Response to Market Conditions

With the ongoing struggle of oversupply in Hong Kong's office market, the local government recently announced a halt on commercial land sales for the upcoming financial year. Financial Secretary Paul Chan hinted at the possibility of re-designating some commercial areas for residential use and adapting land usage policies to ease the situation.

Conclusion: Industry Observations

As Swire Properties navigates these tumultuous waters, industry observers eagerly anticipate how these strategic shifts and market conditions will play out in the coming months.