Hanison Construction acquires Hay Nien Building for HKD489 million

Five months after the government announced it would relaunch the Revitalisation Scheme, Hanison Construction Holdings agreed to acquire the industrial building Hay Nien Building, at No. 1 Tai Yip Street, Kwun Tong, for HKD489 million (USD62.7 million). Based on the gross floor area of 62,889 sq ft (5,843 sq m), the unit price was HKD7,776 (USD997) per sq ft. (Source: HKEX, 12 March 2019; Mingtiandi, 14 March 2019)

Research View 

The previous revitalisation scheme resulted in several successful revitalisation cases, such as KC100, Maxgrand Plaza and The Globe. According to our latest Radar report Industrial 2.0 More than a facelift, the average transaction price for a refurbished industrial building in Q4 2018 was about HKD10,812 (USD1,386) per sq ft, 48.3% higher than non-refurbished industrial buildings, indicating a substantially higher potential investment return after revitalisation. Looking ahead, we expect the Revitalisation Scheme 2.0 to be gradually launched throughout 2019. According to our research, Kowloon East, particularly San Po Kong, has a high potential to be a major location for industrial revitalisations. Factors include the district being part of the future CBD2 development, the future completion of the Shatin-Central Link, and the influx of new residents into the district.


 

Sa Sa shows market confidence despite disappointing Lunar New Year results

Hong Kong based cosmetics retailer Sa Sa International has leased a new branch in Tsim Sha Tsui. Located in Star House, on 3 Salisbury Road at the junction of Canton Road and Salisbury Road, and opposite the 1881 Heritage shopping centre. The new shop spans 4,000 sq ft (371.6 sq m) distributed over two floors (a portion of G/F and the 1/F). The total rental for the shop amounts to HKD2 million (USD 254,775), or HKD500 (USD63.7) per sq ft per month. The previous permanent tenant was Armani Exchange. (Source: hket.com, 13 March 2019)

Research View

Sa Sa recorded disappointing Lunar New Year results this year, which saw retail sales and same store sales drop by 4.8% and 7.9%, respectively, compared to the corresponding Lunar New Year period last year1. Sa Sa’s move to lease a street-level shop in a key retail location in spite the currently weak consumer sentiment, sends an encouraging message to the local retail scene. In fact, overall medicine and cosmetics sales recorded more robust growth rates compared to discretionary product categories. Once the US-China trade war is resolved, we should see an upwards trend of retail sales figures, particularly in the second half of the year, with a retail sales growth of around 6% in 2019. Given conditions are improving, Sa Sa’s new store location at the junction of the popular Canton Road, which is home to Hong Kong’s largest shopping mall, Harbour City, should enable the retailer to leverage the high foot traffic, particularly from tourists visiting the area.

1 Sa Sa Sales Update, 13 February 2019


 

Lai Sun wins tender for residential land in Yuen Long

Lai Sun Development beat three other competitors in a government tender and won a 12,045 sq ft (1,119 sq m) residential land parcel in Yuen Long. The transaction price of HKD209.8 million (USD26.9 million) was within market expectations. Based on a developable gross floor area of 42,157 sq ft (3,916.5 sq m), the transaction price translates to HKD4,977 (USD638) per sq ft. The developer plans to invest HKD500 million (USD63.7 million) into the development, providing 105 one-to-two-bedroom residential units with sizes ranging from 280 to 400 sq ft (26-37 sq m). The project is scheduled to be completed in 2024. (Source: HKET, 14 March 2019)

Valuation View

Located south of the Yuen Long Town Centre, the tender attracted low interest from developers. This is not only because of the lacking transportation infrastructure in the area, but also due to additional demolition costs for a vacant school which is currently on the site. We estimate that the selling price of the development needs to reach about HKD15,800 (USD2,026) per sq ft on saleable floor area basis to generate a reasonable profit for the developer.

Research View

With the limited housing supply in the core areas as well as the government’s push to develop Yuen Long South as a new residential cluster, we expect the housing demand in Yuen Long to grow. According to the Census and Statistics Department, in 2018 the mid-year population statistics for Yuen Long showed an increase of 4.6% since 2015, higher than the 2.6% growth rate for the New Territories and the 2.2% for the city-wide average. Meanwhile, the high residential prices are prompting buyers to look for smaller units in non-core locations with more reasonable prices. While extra costs will be involved in providing additional amenities and infrastructure to improve the livability of the area, the developer will need to bet on the growing demand for dwelling in the city’s outskirts like the New Territories.