The completion of the XRL commercial project, totaling 3.2 million sq. ft. of GFA, is expected to transform West Kowloon into a new and strategic commercial hub for cross-border businesses, capital and talent flow.
Hong Kong has always been the springboard for mainland companies looking to expand internationally, as well as a super connector for overseas companies planning to establish their businesses in mainland China. The XRL commercial complex is expected to capture more office occupiers from the banking, finance and insurance field while establishing into a new vibrant business hub for Hong Kong and the Greater Bay Area (GBA), greatly influencing the office market in the next decade.
A future strategic commercial hub for cross-border businesses
In November 2019, the government land auction of the commercial site (643,000 sq. ft.) on top of the XRL high speed rail terminus was awarded for HK$42.23 billion. Under the original approved plan, this iconic project should include about 2.8 million sq. ft. of Grade A offices space and 349,000 sq. ft. of retail area. This development will become the largest commercial complex to be launched serving the Hong Kong office market after the International Financial Centre (IFC) and International Commerce Centre (ICC), which were completed in 2003 and 2010, respectively. With direct accessibility to the high-speed rail station, the project, as one of the most important pieces of the jigsaw, is poised to create a new landmark and business hub that will transform the neighborhood in West Kowloon by injecting vibrancy and community.
In September 2020, the developer of the project, Sun Hung Kai Properties, submitted a proposal to the Town Planning Board with a new design of a two-tower development (instead of the original three-tower design) to target office and retail equaling 2.6 million sq. ft. and 603,000 sq. ft., respectively. Meanwhile, the plan also included the proposal of a “West Kowloon Parkway”, linking the high-speed rail station with the West Kowloon Cultural District (WKCD) and the waterfront to further promote connectivity.
Located between CBD1 in Central and CBD2 in Kowloon East, people working in the future XRL commercial complex will be equipped with quick accessibility to the other two CBDs, and they will also be able to enjoy the great convenience to other key GBA financial hubs. After the operation of the link in 2018, the travelling time between Hong Kong to Shenzhen and Guangzhou has been shortened to around 15 and 50 minutes, respectively. Given its strategic location and comprehensive transportation network, we believe this project that’s aligned with the nearby ICC, will be gradually evolving West Kowloon into a key strategic business hub for Hong Kong and the GBA.
A multi-faceted vibrant cluster to enable workforce mobility
Apart from the new complex in the XRL, the area will undergo rejuvenation in its nearby amenities. The WKCD located at the southern tip of the West Kowloon Reclamation Area with an area of 40 hectares, will be established into a new vibrant cultural hub to bring in more art and cultural elements to the city. According to the government, the WKCD will contain 23 hectares of open space, including a sizable park and a continuous waterfront promenade to increase public space in the neighborhood area while including other components, such as retail, dining, entertainment facilities, hotel and residential developments.
Moreover, the new West Kowloon Station commercial complex will be linked directly to Elements Shopping Mall and indirectly to the ICC tower. These combined with the huge rail hub comprised of the Airport Express, Tung Chung Line, the XRL and the Tuen Ma Line will create a new proposition for commercial centres - a multi-faceted area that attracts businesses. This sizeable concentration of rail transportation infrastructure, cultural and performance facilities and commercial property developments will accelerate regeneration and revitalization activities in the nearby Yau Tsim Mong district.
Leveraging on the GBA opportunities
Whilst the XRL complex will be a prominent offering estimated to be completed in 2025, we expect to see corporates with cross-border business need travelling frequently between Hong Kong and mainland China; likely to set their footprint in the new office building atop the XRL station. We expect the harbour front location and the large floor plate feature to help attract large corporates, state-owned enterprises and sizable occupiers. For instance, Ping An Life have purchased 30% interest of the development’s office portion earlier this year for their future Hong Kong head office, demonstrating the attractiveness of the location for renowned companies. The establishment of this anchor firm should also help to attract more leading financial corporates, as well as mainland and multinational top companies to move in.
In our research report, Mainland Chinese demand creates opportunity for Hong Kong SAR real estate market, we recorded that mainland firms accounted for 11% of the Grade A office leasing deals in Hong Kong in H1 2020. Amongst these transactions, 65% were from banking and finance occupiers.
Whilst Hong Kong will remain an international financial centre with an important role in the GBA, we believe mainland firms and capital will continue to seek opportunities, becoming the next wave of demand in the Hong Kong leasing and investment markets. This is also on the back of more cross-boundary financial initiatives set up between Hong Kong and mainland China under the bigger picture of the GBA development, including the Stock Connect in 2015, Bond Connect in 2017, the Wealth Management Connect announced in 2020, and a potential future Insurance Connect. These allow Hong Kong and mainland investors to trade in each other’s markets, stimulating business and capital flows, and hence supporting the office demand over the long run.