How hot is Hong Kong’s property market? So hot that even Swire Properties is selling major commercial projects.
The real estate wing of the 200-year-old Hong Kong conglomerate is known for its “buy and hold” approach to the market. On Friday, however, the developer of landmarks such as Pacific Place in Admiralty district and Taikoo Li Sanlitun in Beijing announced the proposed sale of a soon to be completed project in Hong Kong’s Kowloon Bay area for HK$6.5 billion, according to an announcement to the Hong Kong stock exchange.
The buyer of the office development is Lucky Melody Limited, a British Virgin Islands incorporated company linked by market rumour to Hong Kong financial services billionaire Pollyanna Chu. A report in Hong Kong’s Sing Tao Daily reported that Chu acknowledged the acquisition, saying that she planned to hold the building “for long term income.”
The deal for the Kowloon tower is the latest in a string of high value transactions in Hong Kong as demand for office space and prime assets from mainland companies drives the city’s real estate market to record levels of activity and new price heights.
Kowloon Still Centre of Hong Kong Activity
Swire had purchased the site at Wang Chiu Road and Lam Lee street in November of 2013 for HK$2.64 billion, and has since been at work planning a 555,000 square foot (51,500 square metre), 22-storey office tower above a 3-storey retail podium.
As a condition of the sale and purchase agreement, Swire is to complete construction of the project still referred to as New Kowloon Inland Lot No 6312 on behalf of the purchaser, with the sale contingent on the development receiving all government approvals by 31 December 2018.
Soon after mainland developer Evergrande set a new Hong Kong record in buying a Wanchai office tower for $1.61 billion in November last year Swire was reported as having contacted brokers about marketing its Kowloon project.
Swire had grabbed the site across Hong Kong harbour from its headquarters in Quarry Bay among a wave of interest in commercial projects in Hong Kong’s Kowloon East area, a district which has been a hub of transactions as Central’s world-leading office rents continue to drive even the wealthiest tenants into budget spasms.
While a management convulsion of a different sort seems to have scuttled Prosperity REIT’s HK$1.9 billion acquisition of the Kwun Tong View tower in Kowloon earlier this month, the alternative commercial location has seen more than $1.3 billion in real estate investment transactions in the last 12 months.
Wheelock and Company scored a pair of Kowloon East victories during the last year, selling half of its One Harbourgate complex to China Life last November for HK$5.86 billion ($755 million). The Hong Kong developer then sold the remainder of the nearly completed development to mainland investor Cheung Kei Holdings for $580 million in July of this year.
Among less-lofty sized projects, privately owned investment house Pamfleet sold The Mark, an office development in Hong Kong’s Kowloon East area to a Hong Kong-listed company for HK$560 million ($72 million) in May.
Swire All in on Taikoo Place?
In its announcement to the stock market, Swire Properties pointed to the opportunity “to realise cash from its investment in the Sale Interest,” as the reason for the asset disposal with the proceeds of the sale to be applied to working capital.
That working capital could be put to good use in implementing the developer’s plans for two new high-end office towers in its existing Taikoo Place development in Quarry Bay over the next five years.
Swire announced in July that it would invest HK$15 billion (US$1.93 billion) in developing two million square feet (185,000 square metres) of prime space at the mixed-used community. According to market reports, leasing on One Taikoo Place, the first of those projects, is due to begin next year with the tower due to open in 2018.
While not mentioned in the sale announcement Swire’s turn away from Kowloon fits with its pitch for Taikoo Place, and its two new office towers, as the best alternative to Central’s office rents. Places to park desks for office workers in the city’s traditional downtown now average $278.50 per square foot per year, according to research by Knight Frank, enticing many developers to look for space in alternate locations which they can offer for just $278.49 per square foot or perhaps a bit less.
Seven subway stops away from Central on Hong Kong island, Swire has positioned Taikoo Place as the top alternative to Central, while developers such as Wheelock have been betting on Kowloon East. By divesting its interest in Kowloon Bay and putting up two new projects in Taikoo Place, Swire has made it clear that, at least for this Hong Kong conglomerate, there is only one alternative to Central.