New World Consolidating Causeway Bay Site for $1.7B Commercial Project

Hong Kong’s New World Development is moving closer to adding a HK$14 billion ($1.7 billion) commercial project to the city’s busiest shopping district, having reportedly applied for a compulsory sale of three adjacent properties in Causeway Bay this month, according to local media reports.

The local giant is on its way to acquiring the remaining stake in the buildings at the intersection of Percival Street, Russell Street and Lee Garden Road — at a reported valuation of HK$4.5 billion — in which New World holds at least an 80 percent ownership in each block.

With the set of buildings all more than 50 years old, the remaining owners of individual units, including Hong Kong entertainment giant Emperor International, CMB Wing Lung and “Minibus King” Ma Ah-muk, will have to sell their respective holdings in the buildings to New World, should the compulsory sale be approved by the city’s Lands Tribunal.

If the developer wins further approval to redevelop the properties as a single site, the retail and office project could yield 297,465 square feet (27,635 square metres) of floor area, according to Alex Leung, senior director at CHFT Advisory and Appraisal. At the current market valuation, New World would be paying HK$15,127 per square foot of the property’s maximum permissible area.

Closing In on Full Ownership

“The site is (in the Commercial (2) zoning), under the Approved Causeway Bay Outline Zoning Plan (OZP) No. S/H6/17,” said Stella Ho, executive director of valuation and advisory at Colliers. “Hotels, offices, shops and other service uses are always permitted under the said OZP.”

Should the compulsory sale be completed, New World will have the opportunity to develop a composite retail and office project, or a ginza-type building, on the site with an estimated value of between HK$14 billion and HK$15 billion, Leung said.

The Henry Cheng-controlled developer currently holds 85 percent, 80 percent and 90 percent ownership, respectively, in the existing buildings, Singtao Daily said.

One of the ageing buildings in which New World is attempting to acquire full ownership is an eight-storey block at 54-60 Percival Street, which is contiguous with the four-storey building on 5-11 Lee Garden Road. The two adjoining plots to that property comprise an eight-storey building at 62-68A Percival Street, which connects to the Happy Mansion at 13-19 Lee Garden Road, as well as a seven-storey building at 70-76 Percival Street, 60 Russell Street and 21-27 Lee Garden Road.

Should New World succeed in consolidating the properties, it will be set to reap returns from a site located just across the street from Hysan Place in Causeway Bay and less than five minutes’ walk from Wharf Properties’ Times Square shopping centre.

New World is submitting the compulsory sale application about six months after it acquired a further 20 percent stake in the three buildings for HK$1.28 billion, which brought its ownership in the properties to 80 percent at the time, the South China Morning Post reported. That ownership share comprised 2,500 square feet of street-level shops and 7,000 square feet of residential space, according to the news site.

“The retail market was weak in the first quarter of 2022,” Leung said, adding that the market downturn during the period had played a role in driving individual unit owners to sell their shares of the buildings.

Commercial properties in Causeway Bay are continuing to sell at a loss, with CCT Fortis Holdings CEO Mak Shiu Tong having sold the entire 19th floor in the ginza-style building at 8 Russell Street at a 20 percent discount for HK$110 million, Singtao Daily reported this week.

Neighbourhood Expansion

Plans for New World’s commercial project were unveiled following a 4 percent year-on-year increase in the group’s revenue from property investment in Hong Kong and a 33.6 percent year-on-year surge in gross profit from commercial properties in the city during the six months that ended 31 December 2021, amounting to HK$1.49 billion and HK$1.1 billion, respectively.

This was mainly due to rental income from New World’s K11 Musea retail project in Kowloon’s Tsim Sha Tsui and from K11 Atelier, the Grade A office tower on King’s Road in Quarry Bay, as well as from an improvement in operational efficiency, the developer said in its latest interim report.

Should New World acquire full ownership of the Causeway Bay properties, the developer would be expanding its holdings in the area, which currently comprise the Pearl City retail complex on Paterson Street.

This would follow other Hong Kong developers’ expansion into Causeway Bay, including Hysan Development, which in March was said to have acquired a unit in the 66-year-old property at 9A Sharp Street East for HK$24.28 million. The purchase paved the way for a compulsory sale that would give Hysan full ownership of the property and could allow for later development of its HK$7.5 billion commercial project in the area.