1) CBD fringe areas are an attractive relocation destination for financial organisations
PAG, a Hong Kong based alternative investment management firm, will lease two floors spanning around 32,000 sq ft (2,965 sq m) in total at Pacific Place Three in Wan Chai, at a monthly rent of HKD120 (USD15.3) per sq ft. The fund manager is currently occupying two floors in AIA Central. The relocation to Pacific Place will provide a rental saving of about 30%. (Source: HKET, 10 December 2018)
According to Colliers’ latest Annual Hong Kong Occupier Survey Report 20181, 22% of surveyed office tenants in the CBD considering relocation prefer CBD fringe areas, including Wan Chai and Causeway Bay, for alternative leasing options. PAG is a clear example of this trend. Wan Chai continues to enjoy its proximity advantage to the CBD, and in fact, we expect the district to become more competitive with the upcoming completion of the Shatin to Central Link, which will add a new MTR station to the area. Following the redevelopment of government office buildings into a new commercial and exhibition space in Wan Chai North, the new future supply should further enhance the district.
1 Colliers Hong Kong Occupier Survey Report 2018, 6 November 2018
2) Weakening buying sentiment could bring an end to the booming nano flat market
Following the recent decline in Hong Kong’s home prices, demand for so-called ‘nano flats’ appears to be weakening. A residential project in Tuen Mun only managed to sell two out of 73 available units, both measuring around 130 sq ft (12 sq m) at a price starting from HKD2.9 million (USD371,800). With price tags between HKD2.9 million (USD371,800) to HKD7.86 million (USD1.0 million), nano flats are often the only size that fits into the budget of first-time home buyers. (Source: SCMP, 8 December 2018)
In contrast to a weak market for nano flats, Sino Land’s Grand Central project in Kwun Tong attracted 3,500 subscriptions for a batch of 488 units which will be sold on 13 December1. Unit prices for flats ranging from 452-862 sq ft (42-80.1 sq m) are between HKD15,532 and HKD20,170 (USD1,443 and USD1,874) per sq ft, which we believe is a low opening price for a first-hand development in Kwun Tong. We see the oversubscription as an indicator for the existing pent-up demand in the market. The lower-than-expected price could be a way to test the bottom of the market, helping to stabilise the weakening buying sentiment. Owing to progressively rising interest rates and the uncertainties associated with the on-going US-China trade war, we expect residential prices to dip by a further 7% in H1 2019.
1 HKET, 10 December 2018
3) Land shortages push prices for data centre site up fivefold in five years
Hong Kong’s biggest and last remaining piece of land designated for development into a data centre sold for a higher-than-expected HKD5.45 billion (USD697 million) to SUNeVision Holdings, sharpening the city’s competitiveness in a race with Singapore to be the regional hub for such purpose-built facilities. The unit price for the 295,405 sq ft (27,444 sq m) plot is equivalent to HKD4,500 (USD577) per sq ft based on a buildable GFA of 1.2 million sq ft (112,640 sq m) in Tseung Kwan O’s Wan Po Road, which is up fivefold from the HKD904 (USD116) per sq ft that SUNeVision paid in 2013. The site received nine bids, including Sino Land, Grand Ming Group, Far East Consortium International, Goodman Group and Hong Kong-based data centre operator OneAsia Network. (Source: SCMP, 12 December 2018)
Data centre land in Hong Kong is costly compared to other destinations like Singapore, where the government offered Facebook a land of four million sq ft (371,612 sq m) for a data centre almost for free. We recommend the government to allocate more affordable land in remote areas of the New Territories for data centres while offering other financial incentives.
The high price is an indicator of strong demand for data centre space in Hong Kong. According to a report published by Research and Markets2, the APAC data centre market should witness investments worth around HKD78.1 billion (USD10 billion) by 2023, growing at a CAGR of more than 12% during 2017-2023. Hong Kong currently has about 8.2 million sq ft (761,805 sq m) of data centre supply. The current site will add another 1.2 million sq ft (112,640 sq m) when completed, which is not a significant increase considering that Hong Kong aims to achieve its long-term goal as a data centre hub and smart city. In view of the limited supply of data centres, we also believe that converting or redeveloping existing industrial properties into new data centres can help owners of industrial buildings and warehouses to boost occupancy and increase yield returns.
2 Data Center Colocation Market in APAC - Industry Outlook and Forecast 2018-2023, Research and Markets