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Hongkong Land Holdings Ltd ($4.66, down 0.02) the biggest landlord in the heart of the Asian financial hub, signed a lease with a crypto asset firm for the first time as the century-old company moves to embrace the emerging sector. Hong Kong-based HashKey Group will take up a floor in Three Exchange Square owned by Hongkong Land, the real estate firm said in a statement Wednesday. The lease represents an evolution of the company’s portfolio in the Central district that brings together traditional financial institutions with block-chain and virtual asset firms as demand for space from foreign banks declines amid the pandemic.

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“The SFC’s recent decision to regulate digital asset exchanges in Hong Kong gives us confidence that this new asset class has a regulatory framework, and therefore a future within the finance industry,” said Neil Anderson. The move will be an upgrade for HashKey, which is currently based in the Cyberport startup business park. Australia & New Zealand
Banking Group Ltd. was the previous tenant of the space in Three Exchange Square. HashKey also has operations in Singapore, Tokyo and Shanghai, according to its website. “Three Exchange Square is one of the most prestigious office buildings in Hong Kong and we are glad to be moving to the center of the business community,” said Michel Lee,
execu􀆟 ve president at HashKey.

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Central, ranked as the world’s most expensive office district, has long been dominated by traditional financial institutions from overseas and mainland China. However, as hybrid workplace arrangements and cost-saving
measures take hold during the pandemic, demand from foreign banks has declined. Lenders including Standard Chartered Plc and BNP Paribas SA have been reducing their office space in the finance district over the past year. The vacancy rate in Central rose to 9.6% at the end of July from 5.7% a year ago, according to data from Jones Lang LaSalle Inc. Notwithstanding these challenges, in a recent interview with Bloomberg, HongKong Land’s executive director Raymond Chow said that he expects demand to withstand concerns about political clampdowns and pandemic setbacks. During the interview, he said that leasing demand is robust for its dozen interconnected office blocks in the heart of the city’s financial district known as Central.

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Business hasn’t been affected by the introduction of the national security law or tightened quarantine rules, Chow added. “In reality we don’t see the leasing demand subsiding at all,” Chow said. “What we see is a lot of corporates now are elevating and going back to quality.” Hongkong Land’s optimism stands in contrast to the overall performance of the rental industry in Central. Office rent prices in the area fell 3.3% in the first seven months of the year, JLL said. Foreign banks have been downsizing in the past year due to hybrid workplace arrangements and cost-saving
measures.

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Hong Kong’s office sector will remain a “tenant’s market” in the next 12 months, Rosanna Tang, head of research in Hong Kong for Colliers International, said on Bloomberg Television on Monday. The firm forecasts a correction in office rents in 2021 before recovering from 2022 onward. Hongkong Land’s office properties are among the most prestigious in the city with tenants including JPMorgan Chase & Co., KPMG and Hong Kong Exchanges & Clearing Ltd. To maintain its competitiveness in a slow market, the century-old company has been creating new services. In an uncommon move, Hongkong Land recently opened a flexible working space to capture the demand for agile workplace leasing. Going forward, it aims to offer health and wellness amenities to its tenants to match their changing lifestyle, according to Chow.

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HongKong Land has also recently announced a US$500million share buyback program which is expected to last till Dec’2022. So far the company has only bought back 320,000 at US$4.67, spending US$1.494 million, leaving plenty of firepower to “accumulate” the stock. Trading at 0.3x book, 11x “operating/recurring” 2021 PE, 4.72% dividend yield and 26% upside to consensus 12 month target price of $5.90, we maintain an “Accumulate” rating on Hong Kong Land.