New World Selling Upper Floor in Kowloon Building for $49M

Hong Kong-listed New World Development is realising some returns from a bet on Hong Kong’s emerging commercial districts, having signed an agreement to sell an upper floor of a grade A office tower in Kowloon’s Cheung Sha Wan area for HK$387.86 million ($49.7 million) this past week.

The 28th floor of 888 Lai Chi Kok Road was sold to a unit of local electronics manufacturer PC Partner Group, which announced the deal in a filing to the Hong Kong Stock Exchange, for the equivalent of HK$15,750 per-square-foot.

The commercial deal came despite office investment volumes in Hong Kong dropping 36 percent year-on-year in the fourth quarter of last year. That slide helped pull total investment in office properties in the city down to HK$20.9 billion, which represents the lowest figure since 2011, according to a recent report from CBRE.

The disposal of the high-zone floor, which measures about 24,626 square feet (2,287 square metres) in gross floor area, marks the city’s first strata-title deal of HK$100 million or more in the first quarter of 2022, according to Keith Chan, director and head of research at Cushman & Wakefield Hong Kong.

Moving to Cheung Sha Wan

Given the current COVID-19 situation, the purchase price for the tower’s 28th floor is at least 5 percent above market expectations, said Hannah Jeong, head of valuation and advisory services for Colliers International in Hong Kong.

New World’s latest sale took place despite strata-title office deals worth HK$100 million or more in Hong Kong dropping 52 percent year-on-year to HK$1.1 billion in the fourth quarter of 2021, according to Cushman & Wakefield’s Chan.

The 28-storey building is a five-minute walk from Lai Chi Kok MTR station and was constructed on New Kowloon Inland Lot No.6582, a 50-year land grant plot that New World acquired in 2017 for HK$4.03 billion. The 520,000 square foot project is set for completion in April of this year.

The strata purchase means that PC Partner Group will be moving to Cheung Sha Wan from its current head office location in the Shatin area of the New Territories, according to the announcement, bringing the listed firm closer to Hong Kong’s traditional commercial hubs.

PC Partner Group, which has seen its stock price more than double in the last six months, will be shifting to Cheung Sha Wan from suburban Shatin amid a wave of growing companies relocating closer to the centre of town as office rents and asset values become more affordable in the wake of the pandemic.

Aside from its full-floor purchase, the unit of PC Partner Group also has the option to buy up 10 parking spaces in the tower, each for a price of HK$1.50 million or less when they become available for sale – though this would be subject to the full settlement of the purchase price in accordance with the agreement.

Neighbourhood Transformation

PC Partner Group’s move to Cheung Sha Wan takes advantage of ongoing redevelopment of the area which connects Kowloon and the New Territories.

“Cheung Sha Wan, or the broader Kowloon West submarket, is strategically located between (Hong Kong Island) and the New Territories supported by comprehensive road infrastructure,” said Chan, who added that those in the area would benefit from accessibility to most border control points, as well as being able to reach both the airport and Central district within a 30-minutes by car.

“Traditionally an industrial district, Cheung Sha Wan is repositioning itself as a modern business area, attractive to occupiers from different industries,” he said. Chan noted, however, that due to the economic uncertainty in Hong Kong, the city’s office investment market would remain a buyer’s market this quarter.

New World has bet heavily on Cheung Sha Wan, including buy three sites in the area during 2017, including the plot which has now become 888 Lai Chi Kok Road. The top five Hong Kong developer bought all three Cheung Sha Wan projects made available through government auctions that year, spending a total of HK$15 billion buying land in the area.

Office Sales Buoy Financials

New World’s strata-title sale came five months after the Hong Kong development heavyweight sold three floors in the same building to an unnamed financial institution for a combined HK$1.2 billion in September of last year.

Since sales began at 888 Lai Chi Kok Road in December of 2020, about 72 percent of available space at the project has been sold, according to a scan of Land Registry records.

Sales at 888 Lai Chi Kok Road had helped New World’s financials remain buoyant in the year that ended June 2021, with the developer’s contracted sales in Hong Kong totalling HK$42.4 billion, surpassing its HK$20 billion target by more than double. Aside from the group’s residential projects, such as Mount Pavilia in Sai Kung district’s Clearwater Bay, its Cheung Sha Wan office project had brought in HK$2.76 billion in contracted sales as of 30 June 2021.

This represented an increase of more than three times from its Hong Kong contracted sales attributable to shareholders of HK$13.1 billion during the same period of 2020 when the company was selling solely residential projects.

New World saw a HK$6.6 billion slide in market value in July last year following the forced demolition and rebuilding of part of its residential project, the Pavilia Farm complex, due to defects found in its construction.