Hong Kong’s Swire Buys Tower in Island East Expansion

Swire Properties Ltd. and its partners have agreed to buy an office building from Citic Pacific Ltd. in Hong Kong’s Island East district, where the developer is seeking to expand its dominance as rents rise.

The buyers will pay HK$3.9 billion ($503 million) for the DCH Commercial Centre. Swire Properties will own 50 percent, while Kerry Holdings Ltd., parent of Hong Kong-listed developer Kerry Properties Ltd., will buy 30 percent, according to a statement to Hong Kong’s stock exchange yesterday. A company owned by Larry Yung, a former chairman of Citic Pacific, will hold the rest, the statement said.

The transaction will help Swire Properties step up its expansion in Island East, where it already has 8.84 million square feet (821,260 square meters) of office, retail, hotel and residential development, according to its website. Office rents in the area have been rising as financial-services companies in the city seek alternative locations outside the Central business district, which has the world’s second-most expensive office occupancy cost, according to CBRE Group Inc.

Prime office rents at Island East, which is about 7.7 kilometers (4.8 miles) from Central, have risen about 5.8 percent in 2013, while those in Central declined 0.7 percent, according to data compiled by Jones Lang LaSalle Inc. The vacancy rate in Island East is 2.4 percent, the lowest among all major office districts in the city, the property broker said.

Swire Properties may seek to spend as much as $1.5 billion in the next seven years to renovate older industrial buildings in the district into office space, Chief Executive Officer Martin Cubbon said in a June interview.

JPMorgan Chase & Co. and Royal Bank of Scotland Plc are among banks that moved some of their staff to Island East over the past two years.

DCH Commercial Centre has a gross floor area of about 389,000 square feet, Swire Properties said in a separate statement.

Swire Properties’ shares have fallen 25 percent this year in Hong Kong, compared with a 1 percent increase in the benchmark Hang Seng Index.