A Hong Kong developer has spent more than HK$1.4 billion ($180 million) this month to consolidate a Kowloon commercial project despite a slide in tenant demand that saw rents in the world’s priciest office market fall by the steepest rate in more than a decade during February.
First Group Holdings last week agreed to pay HK$640 million to acquire the Belle Tower in the Lai Chi Kok area from Belle Worldwide Limited, a subsidiary of China’s biggest footwear and apparel retailer, according to sources close to the transaction who spoke with Mingtiandi.
The firm plans to consolidate the site occupied by the 46-year-old industrial building with an adjacent property acquired earlier in the month to develop a new strata-title grade A office project at an estimated cost of HK$1.4 billion.
Planning a New Kowloon Office Project
First Group, which specialises in redevelopment projects, will combine the 9,600 square foot (892 square metre) site at 916-922 Cheung Sha Wan Road with the Centennial Building, which occupies an adjoining plot on the same street, to create a new project which will yield up to 259,000 square feet of gross floor area.
Mingtiandi revealed earlier this month that First Group had purchased the Centennial building at 924-926 Cheung Sha Wan Road for HK$790 million. The new development is slated to be completed by 2023, according to a report from the Hong Kong Economic Times.
Combined, First Group paid HK$1.43 billion acquiring the two properties, or just over HK$5,521 per square foot of permissible gross floor area.
James Siu, deputy managing director and head of Savills’ Kowloon office, estimated that once finished, office space in the Lai Chi Kok area near the project could be sold for approximately HK$15,000 per square foot, or leased for an estimated HK$25 to $30 per square foot per month.
Originally called the Sun Ping Industrial Building, the 46-year-old structure was renamed the Belle Tower after Belle Worldwide Limited purchased the property in 2008 for HK$285 million, according to Land Registry records. Savills is understood to have represented First Group in acquiring the Belle Tower, as it had in the developer’s earlier purchase of the Centennial building, while also acting on behalf of Belle Worldwide.
Decentralised Areas Catch On
According to JLL’s property monitor report for February, an increasing number of tenants leasing offices in decentralised areas like Kowloon as tenants and investors seek to lower costs in a time of uncertainty.
“The current situation will weigh on sentiment and near term business planning across a number of industry sectors, which will lead some firms to hold back on relocation and expansion plans, where they have the time to do so,” said Alex Barnes, head of markets at JLL in Hong Kong.
In January, First Group spent HK$980 million to acquire a commercial site in Tsuen Wan where it plans to develop into a grade A office for HK$1.6 billion. Once completed, it could offer a total gross floor area of up to 155,000 square feet (1,668,406 square metre).