CK Asset Holdings is said to be planning the redevelopment of Hutchison House in Hong Kong’s Central district, an effort that could quadruple the 44-year-old office tower’s valuation to as much as HK$32 billion.
The property arm of the CK Hutchison conglomerate has given the building’s tenants six months’ notice to vacate under a sale and redevelopment clause in the rental contracts, according to a South China Morning Post account citing multiple people familiar with the matter.
However, CK Asset’s Hutchison Estate Agents told Mingtiandi that “no final decision has been made in regards to the redevelopment of Hutchison House.”
The purported redevelopment of the 1974-vintage tower would take advantage of buoyant property values in the ultra-prime location in Hong Kong’s downtown financial district. Hutchison House is adjacent to the Murray Road car park, which became the world’s most expensive commercial plot when it changed hands for $3 billion in May of last year.
Valuation Could Jump to HK$32B Upon Redevelopment
The 22-storey office tower with a gross floor area of approximately 500,000 square feet (46,452 square metres) was approved for redevelopment into a building of 41 floors measuring 492,500 square feet by Hong Kong’s Buildings Department in 2012.
Should CK Asset proceed with redeveloping Hutchison House, the property will be worth HK$60,000 to HK$65,000 per square foot, or HK$32 billion, upon completion, Thomas Lam, Senior Director at property brokerage Knight Frank told Mingtiandi. Rents could be more than doubled to over HK$150 per square foot to provide a long-term rental yield of 3 to 3.5 percent for the landlord, he added. The current asking rents in the office tower start from HK$65 per square foot per month, according to JLL.
The building’s value was recorded as HK$7.7 billion in a circular released by the group in 2015, implying that the redevelopment could boost Hutchison House’s value more than four-fold.
Located at 10 Harcourt Road in Central, Hutchison House is nearby the waterfront and the Central MTR station, as well as such landmark properties as the Bank of America Tower, Bank of China Tower, and Cheung Kong Center.
The building sits next to the Murray Road site, which Henderson Land Development purchased for HK$23.3 billion ($3 billion) last year, shattering records for commercial plots in the city in terms of both total price tag and price per square foot (at HK$50,064). The prized site was approved for redevelopment into a 35-storey commercial tower last month.
Landlords Cautious on Redevelopment
While redevelopment might sound like a good deal, landlords are still cautious about having their office towers redeveloped. “In Hong Kong, many landlords have the plans or needs to redevelop their buildings because a lot of office towers will be over 50 years old in a decade’s time,” said Lam. “However, as the price and rent per square foot for buildings keep on rising, redevelopment will cost them rental income as well as their tenants.”
“If there are no appropriate plans and genuine needs, big landlords in Central would not easily consider redevelopment,” he added. Redeveloping the Hutchison House will take five to six years for construction cost of HK$3 to 4.5 billion, subject to quality of the development, Lam added.
Office Space Demand Remains Strong
The reported redevelopment plan comes against the backdrop of stratospheric prices for commercial properties in downtown Hong Kong. In Central, average rent for grade A office space grew 6.5 percent in April from the previous year to HK$158 per square foot while price per square foot rose by 27.4 percent year-on-year to HK$42,626 in the area, according to Knight Frank.
A strong economy and labour market had supported the leasing demand for office spaces in the first quarter in Hong Kong this year, according to Colliers International. “The rental outlook remains positive for the coming three years given the positive economic and business cycles which are expected to stay,” Colliers International in a note published in late April. “Despite the increasing new supply, space shortage remains amid growing demand.”