The government of Hong Kong has officially begun marketing a slice of Central district’s waterfront to developers, but a depressed property market has dampened expectations for the trophy land sale.
The city’s Lands Department announced on Friday that it had commenced the open tender of Site 3 of the New Central Harbourfront, a commercial plot that had earlier been projected to fetch HK$40 billion ($5.16 billion), with the sale process set to conclude on 18 June 2021.
“Our vision is for Site 3 to become a new landmark for Hong Kong, setting a benchmark for people-centric design with emphases on sustainable and urban design considerations as well as integration with the surroundings,” a spokesperson for Hong Kong’s Development Bureau said in a statement.
The tender is being launched despite the Lands Department having been forced to scrap the sale of a commercial site along the former Kai Tak airstrip in May this year after all of the bids fell below the auction minimum.
Reshaping Central’s Waterfront
“Coupled with its prime harbourfront location, the integrated development will benefit Hong Kong both economically and socially,” the Development Bureau representative said. “The Government hopes that this project can optimise development space by providing the maximum possible commercial floor space to address the city’s strong demand for prime Grade A offices, while creating a world-class harbourfront with quality public open space and pedestrian-oriented connectivity.”
In addition to developing up to 1.6 million square feet (150,000 square metres) of space, the purchaser will be required to provide at least 269,000 square feet of public space, a landscaped deck spanning two streets that fall within the site, and a multi-level pedestrian connection linking Central with the harbourfront.
Site 3 is also subject to stringent building height restrictions which limit the project to 50 metres in height at the western side, and 16 metres on its eastern side.
Hong Kong Commercial Slide
“Fronting the Victoria Harbor and located at the core area of Hong Kong, the Central commercial site is attractive and appealing to developers,” JLL Hong Kong senior director of Valuation Advisory Services Dorothy Chow said in a statement, “However, the city’s office and retail markets are currently in downturn as a result of uncertainties due to the COVID-19 outbreak, and developers would be conservative in their bidding.”
The sale of Site 3, which stretches from the Central ferry piers inland to Jardine House, is being teed up despite prime office rents in Central district having slid by 22.7 percent this year, according to JLL, which foresees leasing rates falling by a further 5 to 10 percent in 2021.
The terms of the tender indicate that Site 3 will include up to 500,000 square feet of office accommodation, as well as retail space and public areas. Prime shopping centre rents fell by 31.6 percent in Hong Kong this year, according to JLL’s figures, although it expects the market for shop space to stabilise in 2021.
The plot is the first major commercial site in Hong Kong’s traditional business district to reach the market since Henderson Land agreed to pay HK$23.3 billion to buy a parcel on Murray Road in 2017 which will yield 465,000 square feet of commercial space once it is completed.
Site 3 spans roughly 47,967 square metres (516,312 square feet) of land and had originally been scheduled for sale during the third quarter, before the government rescheduled the tender on the grounds of needing more time to prepare the two-envelope bidding process.
The dual-stage sale requires bids to be considered for their design merits, as well as cash value, with the site which borders City Hall and will take over the current site of Hong Kong’s General Post Office, seen as influencing perception of the city as well as potentially creating a new social hub along the shore of Victoria Harbour.
JLL’s Chow indicated that the duration of the tender, as well as the resources needed for the project could influence offers from developers.
The veteran valuer noted that, “…possession of the site will be in phases and the development completion period is long. As such, the tender process would take considerable time and developers would need to wait five months for the result after tender close.”
In late September, when the Lands Department had affirmed that it would add Site 3 to the tender calendar before the end of this year, Knight Frank head of valuation and advisory Thomas Lam had estimated 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.
That value was around 25 percent less than estimates of what the site would fetch from the beginning of this year. Total investment for the project could top out at between HK$60 and HK$65 billion.