• Wed
  • Jul 23, 2014
  • Updated: 1:54am

Lai Sun weighs redeveloping Ritz-Carlton into office tower

PUBLISHED : Tuesday, 11 April, 2006, 12:00am
UPDATED : Tuesday, 11 April, 2006, 12:00am

Lai Sun Development is studying the possibility of redeveloping the Ritz-Carlton hotel in Central into an office building, which the company sees as offering greater returns.


However, surveyors and analysts said the value added to the property would not justify the redevelopment costs while office supply would increase significantly in the next few years.


The plan was raised by chairman Peter Lam Kin-ngok in the company's interim results announcement.


Lai Sun holds a 10 per cent stake in AIG Tower, a grade A office building next to the Ritz-Carlton that has achieved rents in excess of $90 per square foot from its latest tenancy agreements.


The developer sees the 15,000 sqft hotel site as having an excellent potential to provide at least 225,000 sqft of office space.


Under the lease terms, neither land premium payment nor lease modification is required.


It is understood that the operation contract between the Ritz-Carlton and Lai Sun is renewed annually, providing flexibility for redevelopment.


The Ritz-Carlton also plans to open a 300-room hotel in 2009 in the International Commerce Centre being developed by Sun Hung Kai Properties above the Kowloon Station.


Dao Heng Securities research head Eric Yuen Chi-fung said: 'Developers should only rebuild a building if it provides added value. In the case of the Ritz-Carlton, I don't see that the value added to the property after the redevelopment would justify the cost.'


Savills director Charles Chan Chiu-kwok estimated the redevelopment cost at $450 million or more than $2,000 per square foot.


He said: 'The office development would be worth $4.05 billion or $18,000 per square foot after completion. Although the operation cost of an office is lower than a hotel, there is uncertainty concerning the office market as supply will increase significantly after three to four years and office rentals may decrease.'


CB Richard Ellis associate director of research Simon Wong Sau-chuen said: 'Grade A office rents in Central increased 11 per cent in the first quarter this year to an average $55 per square foot. This makes a 71 per cent surge in the past year, while hotel room rates have risen 27 per cent.'


Lai Sun was suspended from trading yesterday, pending the announcement. The stock closed at 38.5 cents on Friday.


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