Hong Kong’s Lofter Group Bets HK$500M on Developing Grade A Offices in Kowloon

Hong Kong’s world leading office rents are leading to conversion of more of the city into places to park desks and monitors as well as to greater opportunities for fund investors to profit from turning aging industrial and residential space into modern offices.

Now, Lofter Group (樂風集團) , a local firm known for redeveloping industrial property into studio flats, is betting more than HK$500 million (US$63.7 million) that it can turn a set of sites on a gritty street in Kowloon’s Tai Kok Tsui area into posh workplaces.

Lofter, which was founded more than ten years ago by former school mates  Sherman Liang and Carol Chow Pui Yin, were reported this week to have acquired 108 to 114 Bedford Road in Tai Kok Tsui for HK$243 million, adding the 4,192 square foot site to an adjacent property where the private investment firm has established a 95 percent holding.

In May Lofter was reported to have invested some HK$260 million ($33 million) to buy up 95 percent of the space at 100-106 Bedford Road and had raised the possibility of triggering at compulsory sale for the rest of the units on the 5,850 square foot industrial site.

Bringing Grade A Offices to Tai Kok Tsui

The two sites together amount to more than 10,000 square feet and Carol Chow Pui-yin, founder of the Lofter Group, was cited in the Hong Kong Economic Times as saying said the two sites together could be developed into a 120,504 square foot grade A office building, now that the Town Planning Board has loosened height restrictions in the neighbourhood less than 25 minutes from Central by MTR.

While the site is near the extreme west side of Kowloon, Lofter points out that it lies one block from the West Kowloon corridor, just south of Boundary Street and about 1000 feet from the Prince Edward MRT station.

Close as it may be to Hong Kong’s commercial hub geographically, Tai Kok Tsui currently seems worlds away from the crowds of bankers and barrister pushing their way down Central sidewalks, but that could be changing as the government removes barriers to conversion of industrial properties for commercial use.

In April of this year Warburg Pincus-invested Kailong bought 90 percent ownership in a residential block on Cameron Road in Tsim Sha Tsui for HK$650 million, with this Kowloon property also slated to become grade A office space. Also in April, mainland speculator Hugo Lam bought an industrial site in Kowloon East’s Kwun Tong area for HK$1.6 billion with plans to convert that property into offices.

Lofter has mainly been involved in the development and sale of studio workshops around Hong Kong. It has multiple in projects in places such as Kwun Tong and Cheung Sha Wan. Savills assisted the investment firm with adding the second site to its Tai Kok Tsui holdings.

Rising Rents Create Opportunities in Kowloon

Lofter’s investments come at a time when reasonably-priced space is in great demand in Asia’s busiest financial hub. With Hong Kong as the most expensive city in the world for office rentals for the third consecutive year, even the most status conscious of companies are beginning to look farther afield.

Central and Admiralty office rents have passed their 2011 peaks, with grade A space above HK$130 per square foot per month, and are nearing all-time 2008 highs. That compares with rents in Kowloon West (just south of the Lofter site) of HK$40 per square foot per month. The vacancy rate in Kowloon West is more than twice the rate in Central.

Some critics question the prospects for office developments in the Tai Kok Tsui area. They point out that the new West Kowloon Express Rail Link (to be completed this year) will create a second Central, introducing an estimated 2.8 million square feet of new space with especially good connections to Shenzhen and key points in Hong Kong.