Long wait for Kowloon East
Property analysts have raised doubts about the success of establishing a new central business district in Kowloon East, saying it may take a decade before the area will be ready for development.
The project will establish a second financial centre - double the size of Central - in an area that includes Kwun Tong, Kowloon Bay and the old Kai Tak airport site. It is part of Chief Executive Donald Tsang Yam-kuen's plans, announced in his policy speech last week, to increase the supply of office space and maintain Hong Kong's competitiveness. But Leland Sun, chairman of Pan Asian Mortgage, said he favoured expanding the Central CBD rather than building a new one in Kowloon.
'Transportation links will be key to making any area in Hong Kong a CBD. In addition, the neighbourhood should be conducive to a central business district,' he said.
'It would have been perfect for the government to buy back the former Prince of Wales building and not build the government headquarters at the Tamar site next door,' Sun said. The building is now the People's Liberation Army (PLA) headquarters.
This would have expanded the Central CBD to the edge of Wan Chai, up to the CITIC Tower along the harbour, providing millions of square feet of office space across Admiralty, where transport links are already in place, he said. 'It is still not too late to negotiate with the PLA,' Sun said.
Negotiations would take time - and it would take even longer to develop Kowloon East as a worthy home for companies without a transport link. Sun says the area will only be serviced by train in 2023, when a planned HK$12 billion monorail system is scheduled to open.
John Siu, general manager for Hong Kong and southern China at property brokerage Cushman & Wakefield, said it would take at least a decade to redevelop Kwun Tong into a grade-A office complex because of 'scattered ownership'. Kwun Tong is the city's oldest industrial area, with properties that are 30 to 40 years old. Siu said the Urban Renewal Authority could speed up development by assembling the plots.
Outlining his vision for Kowloon East, or the so-called CBD2, Tsang said the area could provide a total of 5.8 million sq m of office space - double that of Central.
To improve the area's infrastructure, the government plans to build the monorail system, with 12 stops connecting Kowloon Bay and Kwun Tong Station via Kai Tak. The monorail is expected to have daily passenger traffic of about 200,000. Although officials said Kowloon East was not meant to rival Central as Hong Kong's premier CBD, Sun said it would be 'challenging' to establish a new financial district.
'Just look at Island East [developed by Swire Properties] in Quarry Bay,' he said. 'Several financial institutions including American Express, AXA, Bank of America ... have their offices there, but the catchment [area] is still small.
'Also, ICC [International Commerce Centre in West Kowloon Station] has attracted several large financial institutions, namely Morgan Stanley, Credit Suisse and Deutsche Bank, with long-term leases.
'So given the circumstances, who would move to Kowloon East? If the government did not want to move its headquarters there, why would other firms do so?' Sun said.
The city government said it would move 11 departments to Kowloon East in 2014.
Sun warned that the lack of convenient transportation, hotels and infrastructure did not make Kowloon East an attractive spot for investors.
Agents, however, said the government's plan to transform the area into a new CBD could stimulate the industrial investment and leasing sectors.
'We have received enquiries from investors who are interested in buying whole office floors or industrial buildings in Kwun Tong and Kowloon Bay since the government announcement last Wednesday,' said Isaac Wai, senior marketing manager at Ricacorp Properties' commercial, industrial and retail department.
He said investors had begun 'treasure-hunting' for industrial buildings in San Po Kong in Kowloon, where rental prices were cheaper than other areas.
Compared with prevailing transaction prices of HK$6,000 to HK$8,000 per sq ft for new buildings or buildings less than 10 years old, prices in San Po Kong were around HK$4,000 per sq ft.
'Investors believe they can achieve a greater upside potential,' said Wai, who forecast transaction volumes of industrial buildings in the Kowloon area to increase by 10 per cent in coming months.
He also said rents for grade-A offices in Kwun Tong and Kowloon Bay would edge up by as much as 15 per cent over the same period. Rental prices for prime Kwun Tong and Kowloon Bay office spaces average HK$30 per sq ft, compared with HK$60 per sq ft in Central.
'Rents at Kwun Tong and Kowloon Bay will catch up with Causeway Bay in coming years as the infrastructure in Kowloon East is improved,' Wai said.