Wrong thinking on the future of Kai Tak
Low-density housing won't tackle the need for affordable homes, while questions remain over demand for a sports hub
Kai Tak is in the news again, with individuals and organisations debating the pros and cons of dedicating land to housing or a sports hub.
Given that developing the space formerly occupied by the old airport is bound to take many years, we may have to become accustomed to articles debating the merits of various uses for the land. But the arguments recently have been unconvincing.
Is a sports hub really the best use for expensive land, and is there sufficient demand for such a project? Perhaps the existing Hong Kong Stadium and the planned arenas in the West Kowloon Cultural District, among other locations, would provide ample capacity for all but a handful of events per year.
If this is not the case, then interested parties should detail the proposed uses.
Allocating more land for flats may well serve a purpose. However, the desire among some commentators for low-density housing, while laudable, is unlikely to tackle the lack of affordable housing in the city.
Surely low-density housing in such a location would price out of the market the very people that the government hopes to get on the housing ladder.
Whatever use is decided upon for Kai Tak, it is not going to satisfy everyone. As such, strong leadership is required from the government in order to do what is best for Hong Kong.
To complicate matters, several plots at Kai Tak are set aside for commercial and office use. This seems logical given the acute shortage of office space in the city. Despite the economic turbulence in global markets and weaker recent growth here, vacancy rates in many areas are at a historic low.
While it is true that more space has become vacant in Central, other key locations such as Hong Kong East, Tsim Sha Tsui and Kowloon East are seeing vacancy rates below 2 per cent. Occupier options are extremely limited, particularly at a time when many companies are cost conscious and want to relocate to more cost-efficient space.
One needs only look at which sectors are still expanding, namely insurance, retail, and product sourcing. The insurance sector operates off very low margins and insurers cannot afford space in the more pricey locations.
Regarding office demand from retailers, front-end offices in the best locations are unnecessary for many, especially when many retailers have a significant presence with flagship stores. They don't need to make a statement with their offices, but do need functional space.
Considering the demand for cost-effective space, it does Hong Kong no favours that there is only one building today with at least 25,000 square feet of grade A office space available to let at a rent of less than HK$50 per square foot per month. This situation is unlikely to improve, as only eight million square feet is forecast for completion up to 2020. This does not bode well for the market, with long-term average net demand for office space almost two million square feet per year.
A shortfall seems evident, despite current demand which is below average levels.
CBRE, together with Daiwa Capital Markets, did research on how much grade A office space Hong Kong needs in order to maintain its status as a leading world city. They found that Hong Kong needs an additional 17 million square feet of grade A office space by the end of 2020. We need nine million square feet over and above new supply already forecast to maintain economic growth.
Fortunately, solutions are at hand. The report highlights government sites which should be fast-tracked through the disposal process to ensure development before the end of the decade. A Kowloon East office hub can be developed to rival the best office hubs in the region, it says. This would further encourage private investment and embrace the existing and future development in Kwun Tong to provide an office destination, not simply a location, similar in size to London Docklands.
All of this is possible without the need to fully develop the CBD2 (Central Business District 2) project in Kowloon East within the proposed time frame.
Recommended sites, which include three million square feet already privately owned and six million square feet in both East and West Kowloon, are a can-do list, not a wish list. Much good work has already been done, especially from the Energising Kowloon East Office.
I encourage interested parties to make this happen. The future prosperity of the city is at stake.
Edward Farrelly is CBRE's director of research for Hong Kong, Macau and Taiwan