The 44-year-old Murray Building in Central, the former headquarters of various government departments, was sold for HK$4.4 billion yesterday, 35 per cent higher than market expectations.
The Lands Department announced the project had been awarded to Harbour Centre Development, the Wheelock and Company hotel and property investment arm which owns the Marco Polo Hongkong Hotel.
The land price was about HK$13,535 per square foot, above market expectations of up to HK$10,000 per sq ft.
Michael Li Hon-shing, executive director of the Federation of Hong Kong Hotel Owners, said it was difficult to get a hotel site in a prime location.
"Even if we have a new development area such as the West Kowloon Cultural District, there is no site for large-scale hotel development," he said. "The Murray Building is in Central and accessible from core districts such as Admiralty. If developers have confidence in the hotel industry, naturally they would offer a higher price for Murray Building."
Land lease restrictions require the winning bidder to maintain the exterior structure of the 27-storey building in Cotton Tree Drive. The developer will be allowed to use up to 70 per cent of the gross floor area for hotel rooms and the remaining 30 per cent for entertainment and retail purposes.
Li said the average room rate for high-end hotels in Central was HK$3,000 to HK$4,000 a night.
"The hotels in Central are targeting business travellers," he said. "It is true that the weak global economy has affected business travellers' spending in hotels. But the economy has up and down cycles. With back-up from the mainland, the outlook for Hong Kong's hotel market remains optimistic."
Thomas Lam, the head of research and consultancy for greater China at property consultant Knight Frank, said: "Hong Kong is facing a shortage of hotels. There is a lack of new supply of five-star hotels in the next few years,"
He said existing five-star hotels were fully occupied during the peak season, while the occupancy rate was about 70 to 80 per cent at other times.
That was higher than the average occupancy rate of 70 per cent in Macau and 60 per cent on the mainland.
Knight Frank said the average room rate for a five-star hotel had risen by more than 5 per cent in the first half of the year and was expected to rise by a further 3 per cent in the second half.
Meanwhile, Swire Properties outbid 16 developers to win a commercial site in Kowloon Bay for HK$2.64 billion, and Sino Land acquired a residential site in Sai Kung for HK$850 million.