The success of Quarry Bay leads Henderson Land Development to believe Kwun Tong can be transformed into a decentralised office district to meet the needs of technology-related companies. Last week, Henderson and Sun Hung Kai Properties (SHKP) received a significantly lower premium offer of HK$38 million - HK$35 per square foot - for their large-scale office redevelopment project in Kwun Tong. Analysts, however, said the reduction in premium for the project was 'meaningless' in comparison with the more than HK$2 billion total investment cost of the 1.09 million sq ft development. The developers bought the industrial site in 1993 for more than HK$1 billion - or HK$1,300 per sq ft - from Dairy Farm International. Henderson development division general manager Augustine Wong said the project objective was offices, not a data centre. The office market had suffered a downside for five years and new supply had largely been reduced. The office-building potential had reappeared with residential supply at a high level. However, the market would develop in two directions. Companies in the finance field still preferred a core business district address. Technology companies, despite their unwillingness to move into small buildings, did not insist on being in core areas, Mr Wong said. He saw the demand being for large-scale office projects in well-located secondary commercial areas. Because a cluster of landmark buildings was developing, the success of Quarry Bay could be repeated in places such as Kwun Tong, he said. Mr Wong urged the Government to waive land-premium charges for rezoning industrial areas into 'business zones', with mainly office buildings, to speed up the redevelopment of obsolete industrial areas. Other developers were also gearing up to apply for land-use conversions for their industrial sites. An executive from Nan Fung Development said the premium for the proposed office development in Kwun Tong was low and the attractive rate would encourage more developers to conclude premium settlements. Nan Fung, however, preferred to convert three of its vacant industrial sites in Kowloon Bay, Sha Tin and Kwai Chung into residential properties instead of office projects. Applications for the land-use conversion for the three sites were under way, it said. Winsor Properties Holdings director Lam Woon-bun said the Government had been encouraging the redevelopment of obsolete Kwun Tong industrial buildings into modern office projects. But his company's application for the land-use conversion for its industrial site in Kwun Tong had not yet received Town Planning Board approval. Winsor planned to redevelop its How Ming Street industrial site into an office project. It would provide 1.1 million sq ft in gross floor area, based on a plot ratio of 11.6 times. The company might consider converting part of the project into a data centre, Mr Lam said. However, analysts and surveyors said there was unlikely to be an increase in premium settlements for the conversion of industrial sites into office projects. BNP Prime Peregrine property analyst Terry Ip believes developers are in no hurry to redevelop Kwun Tong industrial buildings into office projects as a result of the low premium offer. The premium was insignificant when compared with the billions of dollars in total investment. Mr Ip estimated Henderson and SHKP had already spent HK$360 million in interest expenses since buying the site. On this basis, the HK$38 million premium for the office redevelopment project was meaningless. It is believed there would be an additional construction cost of HK$1 billion or HK$1,000 per sq ft. But Mr Ip said the move indicated developers' optimism in the area's office-market potential. Lanbase Surveyors director Chan Cheung-kit said developers remained cautious and well aware that any potential for oversupply would further weaken the market. Potential office supply stemming from industrial redevelopments would come from San Po Kong and Kowloon Bay. He expected the Government to grant lower land premiums for the conversion of industrial land into large-scale office projects in the future if office prices continued to fall.