The future of Hong Kong’s waterfront is up for sale in a land auction that ends on Friday, with the tender also set to measure confidence in the city’s commercial real estate market.
Site 3 of the New Central Harbourfront, a 47,967 square metre (516,312 square foot) plot stretching from the current post office in Central district to the harbour, is expected to attract bids of as much as HK$40 billion ($5.15 billion), with the winning developer potentially investing nearly double that amount to complete the project.
Friday’s bids will end a government tender process that first started in December of last year. The sale is being conducted through a “two-envelope” process, which will judge proposals for their design merits as well as for the consideration offered.
“Our vision is for Site 3 to become a new landmark for Hong Kong, setting a benchmark for people-centric design with emphases on sustainable and urban design considerations as well as integration with the surroundings,” a spokesperson for Hong Kong’s Development Bureau said at the time that the tender was launched last year.
That design will be watched carefully by city residents hopeful for a project which could not only burnish Hong Kong’s skyline, but could also provide much needed community space in the urban core.
Site 3 is the first major commercial site in Central to be put up for auction since 2017, when Hong Kong’s market was peaking. In May of that year, Henderson Land agreed to pay HK$23.3 billion to buy a parcel on Murray Road, with that sale taking place at the equivalent of a record HK$50,064 per square foot of finished space.
Expectations for Site 3 are considerably lower, which is partly due to changes in the market over the past four years, but also a product of some of the conditions of the land sale.
“Given its prime and strategic location, our valuation for Site 3 has remain firm at about HK$23,000 to HK$25,000 per square foot,” said Thomas Lam, head of valuations and advisory at Knight Frank.
After Hong Kong saw a number of commercial land tenders fizzle due to lack of developer interest in recent years, the veteran valuer indicated that conditions may be improving for the sale of a high-value site.
Referring to the successful sale in May of a Causeway Bay plot to a Hysan-Chinachem joint venture for HK$19.8 billion, Lam added: “Market confidence on commercial property has been boosted by the Caroline Road site tender result to a certain extent, hence we consider the risk of bid withdrawal is relatively low.”
The Knight Frank executive expects total investment for the project to be around HK$70 billion.
The winner of Site 3 will earn the rights to develop up to 1.6 million square feet of commercial space, but will also be required to build at least 269,000 square feet of public space, a landscaped deck spanning two streets that fall within the site, and a multi-level pedestrian connection linking Central with the harbourfront. In order to preserve views of the waterfront for Central denizens about to be located behind the project, Site 3’s future occupant is limited to 50 metres in height at the western side and 16 metres on its eastern side.
Within the commercial space, some 500,000 square feet is earmarked for accommodation, with the remainder being retail and public areas.
The scale of the site, together with these restrictions, is expected to keep the number of bids low, with developers expected to partner up to spread the capital burden.
“We estimate about three to five developers or consortia will submit bids for the site,” Knight Frank’s Lam said. “In addition to large domestic developers, large mainland Chinese firms will also actively participate.”
He added that some developers could also choose to introduce financial backers after winning the bid, such as the partnership formed by Sun Hung Kai when the Hong Kong developer sold 30 percent of a West Kowloon project to China’s Ping An Group for HK$11.27 billion in April 2020. The local builder had paid HK$42.23 billion to acquire the site above the city’s high-speed rail terminus in December 2019.
Additional research for this story provided by Pimfha Chandhapradit.