Hong Kong’s COVID-19 crisis has claimed its latest real estate victim — with the impact of the coronavirus on the city’s retail and hotel markets seeming to be the culprit in the death of a land sale in Kowloon.
The harbourside Arts, Commerce and Exhibitions (ACE) project has cancelled a tender for bids on the 135,005 square metre (1.45 million square foot) project, West Kowloon Cultural District Authority (WKCDA) chief executive Duncan Pescod announced Thursday at a meeting of board members.
The authority had been due to award contracts later this year for the mixed-use project, which includes primarily retail, hotel and exhibition components, supplemented by office and entertainment spaces.
Visitors to Hong Kong plunged 88.2 percent in the first five months of 2020 reaching a historic month low of 4,000 in April, according to real estate consultants JLL.
“The number of visitors to HK in the first half year is only 14,606 which is equivalent to a 99.7 percent y-o-y decrease,” Vincent Cheung, managing director at Vincorn Consulting and Appraisal Limited told Mingtiandi. “All these numbers reflect how challenging it is to the hospitality market. It’s sensible to defer the tender under such market sentiment.”
Market Conditions Discourage Bidders
“Due to the uncertain market economic outlook, the response to the subsequent tender has not been as positive as expected,” the authority said in a statement. “[We] have therefore decided to withdraw the tender.”
The tender for the project was announced in June 2019, with the expression of interest exercise a segment of the process beginning later that same year according to the WKCDA.
“The decision to withdraw the tender is not surprising under the prevailing market condition,” Knight Frank head of valuation and advisory for Hong Kong Thomas Lam told Mingtiandi.
Lam pointed to the retail, hotel and exhibition-heavy nature of the project as reducing its appeal, with all three sectors heavily hit by the pandemic. “The delay is likely to be more than two to three months, possibly until next year at the earliest.”
Hong Kong’s retail sector rang up just HK$26.5 billion in transactions during June 2020, down from May and nearly 25 percent lower than June 2019, according to data gathered by the government census and statistics department.
News of the tender cancellation comes as Hong Kong faces a third wave of Covid-19. Gatherings in public of more than two people have been banned since July 27th, when the government first reported more than 100 new cases a day.
Even before this latest wave hit the city, commercial real estate investment volume reached only HK$6.6 billion in the second quarter of 2020, according to a CBRE report, one of just three sub-HK$10 billion quarters since 2009 with the city government scrapping a Kai Tak land sale in May due to tepid developer demand.
Plans Put on Hold
The Arts, Commerce and Exhibitions proposal – referred to as the ACE project – consists of three components: an exhibition centre; retail, dining and entertainment facilities; and hotels and rental offices.
The rental offices and hotel occupy the bulk of the site with a total gross floor area of 81,066 square metres, while the exhibition centre accounts for 47,045 square meters and the retail, dining and entertainment facilities clock in at 6,894 square meters.
“Hong Kong is estimated to have a shortage in the supply of suitable exhibitions spaces over the next 10 to 20 years” the WKCDA wrote in a September 2019 update report. “The exhibition centre will have the opportunity to capture the demand for existing and new local and international events.”
Available exhibition space topped 150,000 square metres in 2019, the Hong Kong Trade Development Council noted last year. That figure continues to grow, and the West Kowloon Cultural District has recently been forced to temporarily closed large portions of its exhibition spaces, although the Art Park and the Xiqu Centre remain open to the public.
The newly enlarged Hong Kong Museum of Art reopened in 2019 after an extensive four year HK$930 million renovation, while Central’s old Tai Kwun police headquarters relaunched in 2018 with a range of venues available for art shows.
A Rocky Start
The cultural district is built on a promontory of land near Tsim Sha Tsui which was reclaimed from the sea in the 1990s but has since sat unused for nearly 20 years.
The district’s cultural authority was founded in 2008 to manage development on the site. Nestled against the newly completed Kowloon high speed rail station, the area has attracted developer interest in recent years. The government sold a nearby plot of land to Sun Hung Kai properties for HK$42.23 billion ($5.4 billion) in November 2019.
The pandemic is only the latest in a series of disruptions to affect the pace of construction in West Kowloon.
The development became entangled in a breach of contract dispute between a subcontractor and its employees in the fall of 2019. A few months prior, 20 percent of the site was submerged by extensive flooding attributed to cracks in the structure.