1) New World Development wins the commercial site in Cheung Sha Wan
New World Development won the bid for the New Kowloon lnland Lot No. 6505 in Cheung Sha Wan, for a price of HKD7.8 billion (USD1.0 billion) and a unit price of HKD7,808 per sq ft (USD1,006). The tender price slightly exceeded the upper limit of market expectation by 4%. The lot is designated for “Business” usage with a site area of 83,183 sq ft (7,727 sq m) and a maximum developable GFA of 998,201 sq ft (92,735 sq m) (Source: news.gov.hk, February 2017).
It was the only commercial land lot sold in Cheung Sha Wan under the 2016/2017 Land Sale Programme. In close proximity to Kwai Chung, two commercial land lots were sold for HKD350 million (USD45 million) and HKD759 million (USD98 million) with respective unit prices of HKD6,039 per sq ft (USD778) and HKD6,146 per sq ft (USD972). This transaction price was above market expectations, indicating a growing interest in the Kowloon West submarket.
Currently, Cheung Sha Wan has four Grade A office buildings only, with a vacancy rate lower than 7%. This area has become an attractive location for tenants in logistics and sourcing industries, thanks to its central location and close proximity to both the port and the airport. With upcoming developments such as the Hong Kong-Zhuhai-Macao Bridge, Tuen Mun – Chek Lap Kok Link and Hung Shui Kiu Logistics Park, the demand for quality office space in Kowloon West will increase.
2) Increasing investment activity in the hotel sector
Last week, a local investor acquired the Newton Place Hotel in Kwun Tong with 241,690 sq ft (22,453 sq m) floor space and 598 rooms from Henderson Land, for a reported consideration of HKD2.3 billion or USD296 million (HKD9,516 or USD1,226 per sq ft). Newton Inn in North Point, with 143,340 sq ft (13,316 sq m) floor space and 314 rooms, was announced to be sold for a consideration of HKD1 billion or USD129 million (HKD3.2 million or USD411,000 per key). (Source: hkexnews, 17 February 2017).
The sale of the two hotels follows the trend of hotel sales such as the InterContinental Hong Kong (HKD7.3 billion or USD940 million), Sika Hotels in West Kowloon (HKD400 million or USD52 million) and J Plus Hotel in Causeway Bay (HKD1.7 billion or USD219 million). After tourism began to slump in 2014, a number of major players are attempting to dispose of their hotel assets. The number of hotels in Hong Kong has grown significantly between 2009 and 2015, with the increase in tourist arrivals. The industrial building revitalisation scheme, that began in 2010, encouraged investors to convert old industrial buildings into hotels in areas such as Kwun Tong, Kennedy Town, Wong Chuk Hang and Kowloon West. However, with present dwindling tourist numbers, some of the revitalisation plans have been abandoned and owners are starting to redevelop hotel buildings into office, i.e. the Excelsior Hotel in Causeway Bay.
3) Kwai Chung sees the majority new supply of industrial properties
According to the government land sale records, the government has sold two industrial sites in Kwai Chung by public tender since 2015. With a new industrial site at Wing Kei Road in Kwai Chung scheduled to be sold in 2017, providing gross floor area of up to 180,977 sq ft (16,813 sq m), the three industrial sites will provide industrial space up to 689,354 sq ft (64,043 sq m) in Kwai Chung, the area has become the largest industrial supply market for the coming few years.
Valid Industrial Centre and Million Centre were the two major transactions in Kwai Chung in 2016, sold for HKD170 million (USD21.9 million) and HKD255 million (USD32.9 million), respectively. Based on the GFA of 57,734 sq ft (5,363 sq m) and 58,816 sq ft (5,464 sq m), the unit rates were HKD2,945 (USD379) per sq ft and HKD4,336 (USD559) per sq ft, lower than the average price in Kowloon East.
The investment demand for industrial properties has been strong. Industrial buildings offer a stable rental income due to the limited new supply and substantial leasing demand. Amid the new 15% stamp duty on residential properties, we have observed that industrial properties, especially small-ticket transactions, have grown in popularity. A strong demand should support the price growth for industrial buildings in 2017.