1) Hutchison House’s value to triple after redevelopment

News

CK Asset Holdings has planned the redevelopment of the 44-year-old Hutchison House office tower in the Central district. Three people familiar with the plan said that CK Asset Holdings had given tenants a six-months’ notice to vacate the 22-storey building under a ‘sale and redevelopment’ clause in their rental contracts. The building was valued at HKD7.7 billion (USD980 million) in a circular released when the CK group underwent its largest reorganisation in 2015. It was approved for redevelopment into an office building of 41 floors measuring 493,500 sq ft (45,848 sq m) by Hong Kong’s Buildings Department in 2014. Analysts expect the redevelopment of Hutchison House could lift its value to as much as HKD25 billion (USD3.2 billion), translating to HKD50,660 (USD6,510) per sq ft. (Source: SCMP, 8 June 2018)

Research View 

CK Asset Holdings has lost one of its landmark buildings in the core-CBD after selling off 75% of The Center at Queen’s Road Central. Hutchison House, built in 1974, is currently one of the oldest Grade A office buildings in Central. Henderson’s development on the Murray Road site which was acquired for HKD50,064 (USD6,435) per sq ft suggests a new value benchmark for new Grade A office buildings in Central, which should have triggered CK Asset Holdings to resume their redevelopment plan. Landlords of aging office buildings in Central should find it easier to justify development costs given the expected increase in office prices. We expect an increasing number of old office buildings in Central to undergo redevelopment in the future.

2) Alibaba affiliate Cainiao to build a new automated warehouse at Hong Kong International Airport

News

Alibaba affiliate Cainiao Network said it will form a joint venture to build a logistics centre at Hong Kong International Airport (HKIA) as it continues to expand its global network. The announcement comes as part of Alibaba’s commitment to invest over 100 billion yuan (USD15.6 billion) in a logistics network that aims to complete deliveries in China within 24 hours, and within 72 hours globally. Cainiao will take a controlling stake of 51% in the JV together with China National Aviation Corporation and Shanghai-based delivery company YTO Express. The logistics centre is expected to begin operations in 2023, and will have a gross floor area of four million sq ft (380,000 sq m) and the capacity to handle “tens of millions of parcels” annually as cross-border e-commerce continues to rise. At full operating capacity, the centre will add 1.7 million tonnes of cargo volume per annum to HKIA. It will also come with automated warehousing and temperature-control solutions, and will include an air cargo processing centre, a sorting centre, and a fulfilment centre, according to Cainiao. (Source: SCMP, 6 June 2018) 

Research View

With China’s surging e-commerce trend, Alibaba plans to enhance its cross-border logistics capability to reduce delivery times. The Hong Kong International Airport (HKIA) was ranked the world’s fourth best airport by Skytrax, a UK based consulting company, in 2018. With flights to 180 locations worldwide, HKIA serves as the best gateway for cross-border e-commerce with China. Given the development of the third-runway system at HKIA, we believe Hong Kong will become more attractive for e-commerce operators, which will increase demand for warehouse spaces in Hong Kong and support long-term rental growth for modern warehouses. On 24 May, SCMP[1] had reported that the Australia-based logistics property developer Goodman is planning to build a warehouse with robots receiving, sorting and storing goods at a site in Tuen Mun, to capture the demand from e-commerce and logistics customers.


[1] SCMP, 24 May 2018

3) Real estate opportunities amid Hong Kong’s population shift

News

The Working Group on Population Distribution Projections (WGPD) completed the projections for the population distribution for 2018-2026, estimating that by 2026, Hong Kong’s population will increase to 7.83 million. The New Territories will capture 90.4% of the total population growth and account for 54.7% of the total population. On the other hand, Hong Kong Island’s population will drop from 1.25 million in 2016 to 1.16 million in 2026. At district level, Kwun Tong, Shatin and Yuen Long are projected to be the most populous districts by 2026. (Source: Hong Kong Planning Department, 8 Jun 2018)

Research View

The real estate industry should pay attention to the latest projections for the population distribution, and look for new opportunities to stay ahead of the curve. We believe the retail property market in the New Territories will benefit from the inflow of a new and younger population, and retail rents and values in new towns shall continue to increase. More companies will need to consider their office locations, given that millennials prefer to reduce their daily commute while moving into new development areas. With new infrastructure and improved amenities, new Grade A offices in emerging districts, such as Kwun Tong and Cheung Sha Wan should become more popular among potential employees. In 2017, the large local developer New World Development purchased three commercial sites in Cheung Sha Wan to expand its portfolio[2]. We should also see a growing number of self-storage operators in industrial buildings within these districts, given the increasing number of nano-flats in most of the new residential developments.


[2] Lands Department, 15 February 2017, 10 May 2017, and 16 August 2017