When China Mobile snapped up a New Territories industrial site for HK$3.6 billion ($46 million) at a government auction last month, the mainland telecom giant outbid its closest competitor by 56 percent, according to an announcement by the Lands Department on 7 July.
Through a subsidiary, the world’s largest wireless network operator agreed to pay a HK$5.6 billion ($722.6 million) premium over the auction minimum to secure 50-year land use rights for the industrial parcel at the junction of Tsung Tau Ha Road and Kwei Tei Street in Sha Tin.
The successful offer was 70 percent higher than the HK$3.28 billion offered by the third highest bidder, according to the Lands Department, with China Mobile outbidding some of Hong Kong’s biggest developers for what is expected to become a data centre facility in the northern New Territories.
Among the unsuccessful bidders were local heavyweights including Li Ka-shing’s CK Asset Holdings, the Kwok family’s Sun Hung Kai Properties, and Joseph Lau’s Chinese Estates Holdings. Singaporean state-controlled Mapletree Investments Pte also made a bid that fell short of China Mobile’s offer.
The lowest bid offered HK$738 million for the property located five minutes’ walk from Fo Tan MTR station.
Data Centres in Vogue
With the capacity to yield up to 940,000 square feet (87,328 square metres) of gross floor area, China Mobile is paying the equivalent of HK$5,967 per square foot for the project, making it the most expensive industrial site sold in Hong Kong over the last two years.
“I think the price is reasonable although it’s higher than my expectation, ” said Thomas Lam, Executive Director at Knight Frank Hong Kong. “I believe the site will be developed into a high end data center rather than [a] traditional industrial or logistic site.”
With a market cap of HK$1.15 trillion and roughly 950 million mobile users according to its 2019 annual report, the Beijing-headquartered company’s burgeoning 5G communications service is likely the primary driver behind the bid. In April, China Mobile rolled out extensive 5G coverage in Hong Kong, which will require more servers and computer systems to operate.
For investors and end-users alike, data centres have become prized assets in 2020. Just last month US data centre REIT Digital Realty broke ground on its second server facility in Hong Kong, on its way to adding 24 MW to its capacity in the city.
That Hong Kong project came just months after Alibaba Cloud, a networking division of the mainland e-commerce giant, in April announced plans to put $28 billion into data centres and other types of cloud infrastructure over the next three years.
“We’ve seen enhanced real estate investment in the data centre space in recent years, and it’s being accelerated by the ongoing coronavirus pandemic,” said JLL’s Rohit Hemnani, head of alternatives and capital markets.
Once the Sha Tin data center is finished, China Mobile will add the new server shed to a pair of facilities completed in London and Singapore within the past year. The telecom operator already has an existing data centre in Hong Kong’s Tseung Kwan O area.
Hong Kong Boosts Server Capacity
Data centre opportunities have become an area of focus for developers and investors in Hong Kong over the past two years, with four million square feet of space either being leased or transacted for redevelopment, according to CBRE Research.
“While limited land supply, high cost of real estate and long lead times for power availability are some of the key challenges for new data center developments in Hong Kong, the shift in spending patterns to online consumption suggests a greater need for industrial space for data centers, as manifested in recent record-high land transactions,” Samuel Lai, senior director for advisory and transaction services at CBRE Hong Kong.
Thanks to the growth of data centres in the city, by the end of March this year Hong Kong’s overall IT capacity had climbed to 379.6 MW, or enough to power more than 1.5 million physical servers. That figure represents a 27 percent increase from the 299.9 MW in place at 30 March 2019, with CBRE predicting that capacity will grow by another 215 MW within the next few years.
Mainland Buyers Crowd into Hong Kong
China Mobile’s pace-setting industrial purchase adds to a string of Hong Kong investments by mainland giants this year.
Just last week, China Resources Capital, the private equity fund management division of one of the mainland’s largest state-owned conglomerates, led the reported $300 million buyout of Hong Kong’s City Super grocery chain, picking up a 65 percent stake in the high-end food retailer from a group of Hong Kong investors.
During July, China Resources Beer, another unit of the same Shenzhen-based group, purchased the Kader Industrial Centre in Hong Kong’s Fanling area from local magnate Tang Shing-bor for HK$820 million.
In January, Shenzhen-based Kaisa Group Holdings purchased a site near the east coast of Castle Peak Bay in the New Territories for HK$3.5 billion. Four months later the developer followed up by purchasing a 2,718 square foot mixed-use site in Mong Kok at HK$85.9 million.
Also in April, China’s Ping An Insurance invested a dollop of its $1.18 trillion in assets under management to purchase a 30 percent stake in a Sun Hung Kai commercial project in West Kowloon for HK$11.27 billion.