Swire Closes in on $751M Quarry Bay Commercial Project

Swire Properties is closing in on a HK$5.9 billion ($751.9 million) commercial project on the eastern stretch of Hong Kong Island, having reportedly applied in June to force a sale of the remaining pieces which it does not already own in a pair of aging buildings in the core of its home turf in Quarry Bay.

Should the landlord behind Taikoo Place succeed in gaining full ownership of the properties, which are surrounded on three sides by Swire’s Lincoln House, Dorset House and East Residences, it would be set to add a high-end office tower spanning as much as 300,900 square feet (27,954 square metres) in that Quarry Bay complex.

The application for a compulsory sale, which under Hong Kong law allows for acquisition of aging buildings for redevelopment if an investor has acquired more than 80 ownership in a structure, values the Hoi Wan Building and Sea View Building, where Swire is said to have picked up more than the required amount of space, at a combined HK$1.2 billion.

The developer now holds more than an 80 percent ownership stake in the existing structures on the site – located on 9 to 39 Hoi Wan Street and 33 to 41 Tong Chong Street – making it eligible to apply for a forced auction of the properties with each building being more than 50 years old, said local media.

Quarry Bay Cluster

With One Taikoo Place 99 percent occupied and Two Taikoo Place around 40 percent leased, Swire is taking steps to add one more office tower to its Quarry Bay community by consolidating its two plots on Hoi Wan and Tong Chong Streets into a 20,060 square foot site.

Swire’s latest acquisition effort in the area shows the developer continuing to expand its Taikoo Place complex, with the developer’s target site located across the street from its existing apartment block, East Residences, which is part of the same Quarry Bay community.

The proposed office tower in Swire’s Taikoo Place network would likely feature retail space on the ground floor, said Alex Leung, senior director at CHFT Advisory and Appraisal, who added that Swire’s commercial expansion is taking place against a backdrop of falling Grade A office rents in the Island East area – which includes Quarry Bay and North Point – where rates have dropped some 22 percent since the first quarter of 2019.

Following the social unrest and COVID-19 outbreak, the average monthly rent for Grade A offices in the area is now around HK$38 per square foot of gross area, he added.

Shipyard Lane Sets Sail

About a 10 minutes’ walk from Taikoo Place are two more sites on Shipyard Lane and King’s Road, being the Wah Ha Factory Building and Zung Fu Industrial Building, which Swire had applied for compulsory sales of both properties in 2018.

The developer plans to build a 779,000 square foot project for “office and other commercial uses” once it consolidates the sites, according to its latest annual report.

While an approval for the compulsory sale application of its majority-owned Wah Ha Factory Building remains pending, the developer is said to have acquired the remaining units in its Zung Fu Industrial Building for HK$288 million in March this year, reported Singtao Daily.

Swire Stays Afloat

In 2021, Swire’s underlying profit attributable to shareholders decreased from the previous year by 24.6 percent to HK$9.5 billion, primarily due to the reduction in profit from sales of its Hong Kong investment properties, said the developer in its latest annual report.

Gross rental income from its Hong Kong office portfolio in 2021 was down 5 percent from the previous year to HK$5.7 billion. The decrease was mainly due to the loss of rental income from the Cityplaza One office tower, which was sold in the second half of 2020, said Swire in the report.

In spite of that decline, Swire notched what is reportedly Hong Kong’s Island’s biggest office lease since the pandemic, with a local unit of China CITIC Bank agreeing to take up around 15 percent of the developer’s Two Taikoo Place office tower last month.

On the residential side, the developer remained active in replenishing its housing pipeline, having last month bested 20 competing bids to secure a residential site in Hong Kong’s Wan Chai area through a government tender for HK$1.96 billion.

In its efforts to raise cash, Swire was this month reported to have put up for sale more than 1,100 parking spaces at the Taikoo Shing apartment complex, which is less than a 2-kilometre drive from both its Quarry Bay sites, for a combined market valuation of HK$2.36 billion.