Morgan StanleyÆs newest opportunistic/value added real estate fund, MSREF V International, has signed contracts to buy Hang Seng BankÆs Hong Kong headquarters building, a 23-floor office building located at 77 Des Voeux Road in Central for $290 million.

The $4.2 billion fund has again joined forces with local partners Pamfleet, with whom it worked in the Vicwood Plaza deal in Central/Sheung Wan. It sold that building for an estimated $300 million to Macquarie, nearly tripling its $108 million purchase price.

The 44-year old Hang Seng building has 260,000 square feet of space, of which approximately 40% is used by various departments of Hang Seng Bank. Hang Seng Bank says its operations will stay on the premises for a further 18 months, but the bank plans to move elsewhere, probably to a large site outside of Central, says the bankÆs CEO, Raymond Or. The bank is looking for a new location to enhance its operating and cost efficiency.

Grade-A commercial office rentals have rocketed in Central in the last 12 months. With new developments scarce, demand is fuelling price rises. Rent deals that were originally struck at bargain basement levels during the SARS period have come up for renegotiation. For example, banks and alternatives managers in IFC 2 are currently faced with significantly higher rent demands to renew their leases.

For the foreseeable future, space and commercial rents in Hong Kong will be expensive. With the Tamar site being earmarked controversially for municipal government space rather than commercial use, the next giant skyscraper on the Hong Kong horizon is mooted to be a Sun Hung Kai office development in West Kowloon, which will be taller than IFC 2 and probably will be the worldÆs second tallest building after an ongoing development in Dubai. The new Sun Hung Kai skyscraper isn't scheduled to be available for occupation until 2009-10.

Morgan Stanley, incidentally, continues to be based in its Hong Kong headquarters at Exchange Square Three, where it signed a nine-year deal in March 2000. Exchange Square was built in 1985. Back then it was waterfront and considered to be the city's premier office premises.