Do you know... What is the coverage of the Greater Bay Area?
The Greater Bay Area consists of Hong Kong, Macau, and nine other cities in the Guangdong Province, including Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing. The total area is 56,000 km2 and as of the end of 2017, the total population reached 70 million people1.
Infrastructure as the game changer
The continuous enhancement of the infrastructure network between Hong Kong and other cities in the GBA, such as the Hong Kong-Zhuhai-Macau Bridge and the Guangzhou-Shenzhen high-speed railway, which were both opened last year, will benefit and play a unique role in Hong Kong’s office sector in the long run.
The improved accessibility could enhance the transportation and efficiency of capital and talent flow, bringing with it a positive spin for the leasing demand and investment needs of the Hong Kong office sector. This is particularly the case for office submarkets within close proximity of new transportation infrastructure projects, wherein the growth potential of rents and prices are expected to be further unlocked when these areas mature and become well-resourced.
West Kowloon Station - The key highlight of the future office supply
Earlier this year, also in February, when the government announced the land sale programme, the 632,917 sq feet commercial site above the Express Rail Link (XRL) terminus in West Kowloon Station was highlighted as a key site in Hong Kong's future land supply. The site could provide a total GFA of 3.2 million sq feet, including 2.9 million sq feet of office space and 316,460 sq feet of retail space2.
In fact, this future development will become the most sizeable commercial complex to be launched in Hong Kong’s office market after IFC (atop the MTR Central Station) and ICC (atop the MTR Kowloon Station), which were completed in 2003 and 2010, respectively. The portion of office towers is expected to provide sizeable floor plates, which are favourable to large corporate occupiers looking to consolidate their operations.
Given the strategic location of the site atop the XRL station, the project is expected to become another iconic landmark in Hong Kong, serving as one of the most important pieces of the jigsaw to complete the neighbourhood development near West Kowloon Station. We believe it will attract more renowned financial and mainland companies, especially those with frequent cross-border business, to establish their footprints in the area due to the enhanced transportation network. The XRL has already shortened the travel time between Hong Kong to Shenzhen and Guangzhou to around 15 minutes and 50 minutes, respectively.
Better connectivity to narrow the office rental gap across the harbour
The opening of the Hong Kong-Zhuhai-Macau Bridge and the Guangzhou-Shenzhen highspeed railway last year not only established a better connection with Hong Kong and other GBA cities, but it strengthened the transportation network of the western part of Hong Kong as a whole. This will be further echoed by the future completion of the Central Kowloon Route (CKR), which is expected to be commissioned in 20253 to connect West Kowloon and East Kowloon. According to the government’s estimation, CKR as an alternative express route could largely reduce the traffic time between West Kowloon and Kowloon Bay to about five minutes4.
Moreover, the office submarkets such as East Kowloon and West Kowloon could directly benefit from the improvement of these infrastructures, we believe that the benefits driven by the enhanced connectivity in various nodes will further extend to other office submarkets in Kowloon that have growth potential.
Currently, average net effective rents in West Kowloon (including
Kwai Chung, Tsuen Wan and Cheung Sha Wan) and East Kowloon only sit at around HKD35 and HKD 37 per sq foot, respectively, which are only onethird compared to the HKD100 per sq foot for the average net effective rents on the Hong Kong Island.
While the process of office decentralisation is expected to continue over the next decade, we believe rents in West Kowloon and East Kowloon will gradually increase in the long run, as the district continues to mature along with the completion of more quality office buildings on the back of an improved transportation network. The rental gap between West and East Kowloon, and Hong Kong Island will eventually narrow in the long-term.
Office demand to benefit from the innovative technology sector
The HKSAR government reiterated in this year’s budget the importance of developing a diversified economy by introducing the Innovation and Technology (I&T) industry to enhance the city’s competitiveness and better prepare Hong Kong as the gateway city under the bigger GBA plan. For instance, the government has already earmarked HKD5.5 billion for the development of Cyberport 5 to promote biotechnology, artificial intelligence, smart city and fintech.
The new wave of I&T industry development is expected to stimulate a balanced flow of talent between Hong Kong and other cities in the GBA. By recognizing the opportunities to develop beyond the border, we expect a sustainable growth for the local startup ecosystem with the support of multiple one-hour living circles within the GBA area. This is expected to generate a sustainable demand for office space and flexible workspace in Hong Kong in the longer-term.
Even though the GBA plan is still in its early stages, we are already seeing some of the benefits through several of the infrastructure projects, as well as the sharing of knowledge and talent among cities. If you would like to know more about what is happening in the GBA plan and the potential opportunities please contact Rosanna Tang, our Head of Research for Hong Kong and Southern China.
2 Source: The 2019-20 Land Sale Programme; West Kowloon Cultural District Proposed Development Plan