The depressed industrial and composite industrial-office (I-O) markets have received a boost with the Government's promise to offer owners and developers more flexibility to add value in those premises. Endorsement by the Town Planning Board of a revised set of planning guidelines for applications regarding industrial and I-O developments was hailed as a positive step to meet the changing needs of the industrial sector. Under the new rules, announced by the board's vice-chairman and director of planning Peter Pun Kwok-shing, a broader range of uses and premises in industrial areas, including office, showroom and commercial uses in industrial buildings, and I-O buildings would be allowed. First, the proportion of permitted ancillary office use in industrial buildings has been increased from 30 to 50 per cent of the total usable floor area. A combination of ancillary office and showroom use of up to 50 per cent of the total usable floor area also is permitted, provided the ancillary showroom does not occupy more than 20 per cent of the total usable floor area. In I-O buildings, retail shops will be permitted on the lowest three floors, provided they are intended to offer supporting functions to the I-O uses. Such retail premises can reach up to a maximum plot ratio of one on the development site or 10 per cent of total floor area to be built. Also, trading firms requiring large storage space of not less than 30 per cent of the total usable area and involving frequent loading and unloading activities, which cannot be accommodated in conventional office buildings, also will be permitted in an I-O building. In the past, only industrial-related companies were allowed to occupy spaces in such composite buildings. C.Y. Leung & Co director Francis Li said the revised planning guidelines might encourage developers to consider pursuing I-O developments and hence speed up the redevelopment of old industrial buildings. The rights to incorporate retail premises would provide better supporting facilities to an I-O building, raising its potential value and attractiveness to prospective tenants and buyers, he said. The revised provision to use up to 50 per cent of an industrial building's space for ancillary office use effectively added certainty to the sector, he said. According to analysts, the proportion of space used for office purposes in many industrial buildings has exceeded the originally stipulated limit of 30 per cent. Although this practice is illegal, government authorities find it difficult to rectify or penalise those having infringed the rule. Analysts said the new guidelines for raising the ceiling for ancillary office use could be regarded a move to legitimise such common practices. Mr Li said the effect of this new provision on the prices and rents of industrial building space would be minimal. For existing industrial buildings, subject to their land-lease terms, owners might have to negotiate with the Lands Department to find out if they needed to pay an extra premium for using up to 50 per cent of space for office purposes, he said. Land leases of some existing industrial buildings stipulate that only a maximum of 30 per cent of space can be for office use. Allan Yeung, consultant to the industrial department at Vigers, said the rights to build retail space could increase the value of an I-O building. However, whether it was suitable to include retail premises in an I-O building would depend on its location, he said. 'In industrial areas, there will be a thin customer flow at night to support the operation of retail shops,' he said. Mr Yeung also said some developers might review their planned I-O projects. But he cautioned that there was a large supply of I-O developments anticipated to come on the market in such districts as Kwun Tong. Alvan Chan, district manager of the industrial department at Midland Realty, said possible space users of retail premises in an I-O building were banks and restaurants. Some I-O building owners already had obtained government permission to convert space on the lower floors to retail use by paying an extra premium, he said. He said I-O buildings, especially those in Kwun Tong and Cheung Sha Wan, could benefit from the new provision which could raise their standards closer to those of conventional office properties. Analysts said this might, in effect, give rise to a negative impact on secondary office buildings, as some tenants and buyers might be lured to such new I-O buildings. Mr Chan said the negative effect on secondary offices should not be significant as the different specifications in pure office buildings and I-O buildings would cater for different companies. He said the prices and rents in certain I-O buildings were not too far from those of secondary offices and the gap may narrow further. According to Mr Chan, average prices of I-O buildings in Cheung Sha Wan could exceed $4,000 per square foot while those in Kwun Tong were about $3,000. Overall, rents were in the region of $11 to $20 per sq ft a month, he said. The industrial property market had been in the doldrums for years. The rush of developers to redevelop old industrial blocks into I-O buildings had triggered fears of an oversupply, and consequently, many projects had been put on hold. The Government is conducting a complete review of uses for industrial properties and industrial land. Besides the new planning guidelines issued, it is considering possible rezoning existing industrial areas. Analysts predict better prospects for the generally flat industrial market. The new guidelines' impact is expected to be positive although the extent of the impact has to be gauged.