HONG KONG’S distinctive Lippo Centre — twin glass-fronted octagonal towers whose facade some say resembles koala bears climbing a tree — has long been a gauge for the health of the world’s most expensive office market.

Right now, it’s barely showing a pulse.

In a market where buying and selling individual floors, or even just suites in a building, can lead to quick profits, just three deals have been done in the Lippo Centre this year, with the average price dropping 17% from a year earlier. The number of deals is down from as many as 18 in the first half of 2017 — the most active of recent years.

There’s no shortage of reasons for the downturn. Hong Kong is in its deepest economic funk on record as last year’s investment-chilling anti-government protests were followed by the coronavirus shutdowns. Now disquiet over China’s national security laws has rattled the city anew, stoking concern it will lose its status as a regional financial hub and drawcard for expats.

“It’s been very quiet,” said Daniel Siu, a sales director at Centaline Property Agency Ltd. whose district covers Admiralty where the Lippo Centre is located. “When everything is uncertain both politically and economically, buyers are very conservative.”

The dearth of activity augurs poorly for the broader office market, where these strata-title transactions for a portion of a building typically account for about 40% of all deals by value. Office valuations in the city may slump as much as 20% this year, according to Jones Lang LaSalle Inc.

Prices have already fallen for the few deals in the Lippo Centre, with the average price at HK$27,380 ($3,533) per square foot, data from Midland Holdings Ltd. show.

With vacancy rates in premium buildings in Hong’s Kong Central hub reaching a 12-year high of 5% in May, according to JLL, investors are also wary of buying office space when there’s no guarantee they will find a tenant.

The Lippo Centre’s strata-title structure, which allows individuals to own part of a property, along with its prime location and long-term tenants including the Taiwanese, Mongolian and Brunei embassies, make it popular with property speculators. They can play the market without having to put together multi-billion dollar deals needed to buy entire buildings.

Yvonne Lui, the former girlfriend of tycoon Joseph Lau, turned a HK$55 million ($7 million) profit in 2018 by flipping two office units in the Lippo Centre less than two years after buying them, local media reported at the time.

The lack of transactions in the Lippo Centre this year is being replicated across the market. The city is set for the lowest strata-title transactions by both value and volume since the data was first collated in 2007, according to Real Capital Analytics.

A key reason for the downturn is the retreat of mainland Chinese investors, who have kept away since anti-government protests broke out more than a year ago, said Benjamin Chow, an analyst at Real Capital Analytics. Chinese buyers had been a major force behind the market’s run-up in 2018, he said.

“Following the extended political unrest, Hong Kong’s strata office market has quietened down dramatically,” Chow said. “Part of this is due to the withdrawal of cross-border investors, including those from mainland China.”

The last strata office investment in Hong Kong by an overseas investor was struck just over a year ago, he added.

While Chinese buyers have disappeared from the sales market, some financial firms are active in leasing space. CMB International Capital Corp., and China Minsheng Banking Corp. recently expanded their footprint in Central, according to people familiar with the matter. They joined tech giants ByteDance Ltd. and Alibaba Group Holding Ltd., which took up more space in Causeway Bay.

With few strata deals being done, Centaline’s Siu said he would focus on leasing to get through the downturn.

“There’s barely four deals a month,” he said. “That isn’t enough to feed our team; we just have to cross over to do everything from office leasing to home sales.” — Bloomberg