Hong Kong’s Chai Wan property market may get a little hotter this month as a converted industrial building is auctioned off on the east end of Hong Kong island.
The 11-storey Johnson Place will be offered to interested buyers via public tender, which is closed on October 11th, with a tentative asking price of HK$1.2 billion.
If the bids meet the seller’s asking price, the value of the asset would work out to HK$12,600 per square foot, over four times the price that the current owner paid for the property in 1993.
Transforming an Industrial Building
Despite the jump in value over the past 25 years, however, current owner Johnson Electric is said to be settling for well below market rates of HK$20,000 per square foot for retail space in the neighbourhood, according to Savills, which is representing the owner of the combined retail and office complex in the tender process.
The supplier of electric motors and other propulsion equipment had originally acquired the building at 14-16 Lee Chung Street in Chai Wan in 1993 for HK$ 237 million, and has recently completed a renovation of the still vacant property.
The 95,476 square foot (8870 square metre) tower is located three minutes walk from the Chai Wan Station of the MTR’s Island Line and is directly opposite to Henderson Land’s 36-storey office tower E-trade Plaza, where it is surrounded by a variety of office, retail, and industrial buildings.
According to Savills, the former workshop now provides both retail and office space, with the lower three floors, including the ground floor, covering a construction area of 36,310 square feet, serving as a restaurant component. The fourth floor through the tenth floors are set up as office space, which totals 58,195 square feet.
James Siu, deputy managing director of Savills Development & Investment department, said that Johnson Place had originally been built in 1965 as an industrial workshop.
Chai Wan Property Market Welcomes A Big Office Deal
Chai Wan, at the east end of the MTR’s Island Line, is mainly known as a residential and industrial location, however, the owner may be looking to leverage Hong Kong’s rising demand for office space to achieve a higher valuation after converting the structure for commercial use.
In the past year, there are 283 sales records for industrial properties in Chai Wan, according to statistics published by Hong Kong Property, with prices for industrial space in the district averaging around HK$4,000 per square foot. During the same period, however, only one commercial transaction was recorded, the sale of a 7,725 square foot space on the 23rd floor of E-trade Plaza which brought a unit price of HK$9,061 per square foot.
According to Reed Hatcher, head of Cushman & Wakefield Research for Hong Kong, however, Chai Wan’s limited supply of office space may be in line with demand. “Chai Wan historically is predominantly a residential area with some community retail supporting that. There isn’t a lot of office and given its character and remoteness, the potential for Grade A office development there is limited,” said Hatcher.
Now the newly renovated Johnson Place may provide a test of how far east investors are willing to go to get into Hong Kong’s office market.