Swire Properties: Near-Term Weakness Across Office and Retail Assets; Share Price Pressure Remains

Narrow-moat Swire Properties’ first-quarter operating performance was within our expectations, with continued weakness across its office and retail assets. Its Hong Kong offices generally registered a decline in headline rents compared with the fourth quarter of 2023, in line with the overall Grade A office market. The Pacific Place and Taikoo Place offices reported negative rental reversions of 17% and 13%, respectively, as leases are renewed at a lower market rate compared with the previous lease cycle. That said, we retain our view that Swire’s high-quality core office assets will remain resilient compared with peers, as end-March 2024 portfolio occupancy of 89% is unchanged from end-2023. Individual office occupancies—except Two Taikoo Place, which opened during the current downturn—also outperformed the respective submarket.