Despite a tepid investment market, political and economic uncertainty and an ongoing public health crisis, the Hong Kong government is moving forward with an attempt to sell a trophy site site fronting the Central business district’s waterfront before the end of this year, according to an announcement late Monday.
The Hong Kong Lands Department now plans to make the plot, which stretches from the Central ferry piers inland to Jardine House, available by tender sometime during the fourth quarter of this year, with the reserve price for the auction having yet to be announced, although some analysts estimate that the property may have lost 25 percent of its value since the beginning of this year.
New Central Harbourfront Site 3 has stayed on the government land sale slate despite office rents falling to a 15-year low in August, and the city’s only previous attempt at selling a commercial plot this year having been cancelled due to lack of developer interest.
“No question, the last several months haven’t been optimal for the conditions of a sale of this magnitude and it might be considered only natural for the government to wish to delay,” speculated Reed Hatcher, head of research at Cushman & Wakefield. “But it also reflects the importance of this site in particular, given its location and potential to become a future landmark for the city.”
Hong Kong Waterfront Makeover
Site 3, which spans roughly 4.8 hectares (516,322 square feet), had originally been scheduled for sale before 30 September, with the government saying in an announcement that the tender had been pushed into the fourth quarter as more time was needed to perform a two-envelope tender process. The dual-stage sale of the project, which borders City Hall and will take over the current site of Hong Kong’s General Post Office, requires bids to be considered for their design merits, as well as cash value.
Knight Frank head of valuation and advisory Thomas Lam estimates the parcel’s value at between HK$37 and HK$40 billion ($4.8 to $5.1 billion), or about HK$23,000 to HK$25,000 per square foot, based on a potential gross floor area of 1.6 million square feet. Total investment for the project could top out at between HK$60 and HK$65 billion.
The project is within walking distance of some of Hong Kong’s best known commercial landmarks, including the IFC, the Cheung Kong Centre, Exchange Square and the forthcoming Central Market regeneration.
Site 3 will include up to 500,000 square feet of office accommodation, as well as retail space, and the conditions of the tender include height restrictions which form part of a set of design requirements that, “responds to the public aspiration for quality public open space at the harbourfront,” according to an official release.
Design Becomes a Priority
The plot’s potential to be developed into the kind of cultural and commercial mixed-use precinct that has helped to make waterfronts in Singapore, Sydney and other world cities into community hubs has spurred public debate. “Its value goes way beyond just the amount of money,” Cushman & Wakefield associate director of research, Eric Chong said in a statement.
Contrary to its usual practice of prioritising land revenue over community considerations, the Lands Department is giving equal weight in the tender process to the design and price elements of developer bids.
Hong Kong Southern District Councillor and CEO of Designing Hong Kong, Paul Zimmerman agrees there’s more than just a price tag involved, and argues that Site 3 could be the anchor in a rejuvenated, and regionally competitive, Central district.
“This site has an enormous amount of public realm potential and gains. It links the ground level waterfront with the elevated Central,” explained Zimmerman.
The area is a transit hub that could alleviate traffic in the core, and “As a waterfront site it should be parks, and cafés, for people to enjoy,” Zimmerman added. “It will be a pity and missed opportunity if we don’t make it work because there are no more sites like this in Central. Site 3 is the last opportunity to stitch it all together.”
Central on the Slide
While the Central site continues to be regarded as the crown jewel of Hong Kong’s traditional business district, the market for plots in Central has undergone a radical transformation since Henderson Land paid a then-record HK$23.3 billion for the Murray Road carpark site in 2017, and since Knight Frank estimated the value of Site 3 at HK$50 billion in January of this year.
According to the agency, the parcel’s value has slipped 25 percent since that pre-Covid appraisal, with office rents in Hong Kong now having fallen for 13 straight months. The Lands Department’s only other attempt at tendering a commercial site this year — a planned sale of a 19,788 square foot plot in Kai Tak — was cancelled in May due to lack of developer interest.
Office vacancy in Central stood at 6 percent in August — the highest level recorded since 2005, according to JLL. Rents in the district, which have long been the highest in the world, fell by 2.5 percent last month, compared to July.
Even the optimists acknowledge that the site will not bring the city the kind of bounty that it might have in years past.
“The historically high vacancy level in Central, due to the economic downturn, has affected developer and investor confidence level,” said Hannah Jeong, head of valuation and advisory for Colliers International in Hong Kong. Still Jeong remained confident that developer’s would show interest in the site, noting that, “Site 3 is attractive for a long term play.”