Hong Kong’s SHKP Wins Mong Kok Commercial Site for $602M

Hong Kong’s Lands Department has awarded Sun Hung Kai Properties (SHKP) a site in Kowloon’s Mong Kok area at a price of HK$4.73 billion ($602 million), clinching the city’s first commercial land sale of the year at a value significantly below market expectations.

SHKP placed the highest tender for the site’s 50-year land grant, beating out CK Asset Holdings and an entity controlled by Great Eagle Holdings and Sino Land Company for the parcel at the junction of Sai Yee Street and Argyle Street.

The Hong Kong-listed real estate giant is paying the equivalent of nearly HK$3,103 per square foot of maximum buildable area for the site, which measures about 124,183 square feet (11,537 square metres) and allows for a development with a gross floor area ranging from 914,501 square feet to 1,524,168 square feet.

The transaction price is 17 percent below the lower boundary of market estimates of the plot’s value, which ranged from HK$5.7 billion to HK$11.8 billion, according to Alex Leung, senior director at CHFT Advisory and Appraisal.

The disposal to Hong Kong’s largest property firm by market cap follows a series of failed land sales in the city this year, as weak market sentiment and rising interest rates continued to suppress developers’ enthusiasm for new projects.

Mong Kok Supertall

SHKP plans to develop the newly acquired site into an office and retail complex with a height of 320 metres (1,050 feet) and 1.52 million square feet of space, the company’s chairman and managing director, Raymond Kwok Ping-luen said in a statement.

The completed property would be the second tallest skyscraper in Kowloon, after SHKP’s 1,588-foot-tall International Commerce Centre, and would represent the largest combination office and retail building in Mong Kok, according to the statement.

The tender for the site, Kowloon Inland Lot No. 11273, requires the development of community facilities as well as a public transportation interchange, which would have an adverse impact on site value, Leung noted.

Under the terms of the tender, SHKP is required to build a light bus transport exchange and cross-border bus terminal at the ground and basement level of the building, which would shift the commercial spaces upward and therefore affect the size and value of the shopping mall, Leung said.

The valuation expert anticipates that a public car park will also be needed to serve the commercial spaces in the proposed building, which may necessitate a five-level basement, lengthening the construction process and driving up costs.

SHKP will also need to construct a day care centre for the elderly, a neighbourhood elderly centre, an integrated youth services centre and a community centre for mental wellness on the plot, according to the tender document.

Rebound Expected

Despite the restrictions, SHKP may be betting on a recovery in commercial leasing demand to boost the outlook for its new site, which is located two blocks south of the developer’s Grand Century Place, a 1.6 million square foot commercial complex at 193 Prince Edward Road West.

“With Mong Kok being a traditional commercial hub, the site is well positioned to benefit from the rebounding retail and office market,” said Hannah Jeong, head of valuation and advisory services at Colliers Hong Kong.

Jeong noted that the grade A office market in Mong Kok had an overall net rent of HK$49.8 per square foot in December 2022, down 2.1 percent year-over-year, while the area posted a vacancy rate of 5.9 percent in the same month.

Office rents in Mong Kok’s Langham Place commercial complex dropped 2.3 percent year-over-year in 2022, while occupancy declined by 3 percent. Rents in the shopping mall were down 5.3 percent year-over-year and 39 percent less than 2018 levels.

“The reopening of the border [with mainland China] will immediately boost the retail market and consumer spending, while the office market will see a slower recovery,” Jeong commented.

Weak Land Appetite

SHKP’s new acquisition comes after Kerry Properties bought an 89,986 square foot residential plot in the New Territories for HK$1.44 billion last month, marking Hong Kong’s first successful government land sale of 2023.

The tender for the city’s first residential plot of the year was withdrawn in January after offers from four bidders on the luxury site in the Stanley area failed to meet the government’s expectations. In February, the Urban Renewal Authority rejected the only tender for a commercial plot in Kwun Tong.

Also last month, MTR Corporation ended a tender for a HK$10 billion project in northern Lantau Island without finding a buyer, after three bids for the commercial and residential site fell short of expectations.

Jeong noted that the successful disposal of the Mong Kok site would help alleviate pressure on government finances, despite the lower-than-expected price.

“With the string of cancelled land sales in the past months, the sale of this site highlights the government’s improved understanding towards the market sentiment and outlook of developers,” she said.