Old buildings get new lease on life

PUBLISHED : Wednesday, 14 October, 2009, 12:00am
UPDATED : Wednesday, 14 October, 2009, 12:00am

Hong Kong's old and decaying industrial buildings are expected to get a new lease of life when Chief Executive Donald Tsang Yam-kuen announces plans for the sector in his policy address today.

A key relaxation of rules on the re-use of existing industrial buildings will be announced, whereby provided basic safety and fire concerns are addressed a wide range of new uses will be permitted, said Nicholas Brooke, the chairman of property consultant Professional Property Services.

'New uses likely to be permitted will be in the area of creative industries, innovation and technology, housing for the elderly, and even starter homes; with minimum waiver fees or modification premiums likely to be levied,' he said.

The chief executive has previously signalled that the government proposes to promote six knowledge-based sectors it has identified as new engines of economic growth - medical and educational services; testing and certification; innovation and technology; and the cultural, creative and environmental sectors.

Tsang is expected to unveil measures to promote conversion and usage of run-down or under-used industrial buildings into affordable working spaces to cater for the arts as well as service-oriented industries such as testing and certification, and innovation and technology.

To smooth the way for the redevelopment of old industrial buildings, the government may lower the threshold at which a developer can enforce a compulsory buy-out of all unit owners in the target buildings from the standard acceptance rate of 90 per cent to 80 per cent.

Data shows a steadily declining demand for industrial space which has led to older industrial buildings lying vacant in Hong Kong.

The stock of 'flatted factories' in Hong Kong (small factory units in high-rise buildings) totalled 187 million square feet at the end of 2008 and about 83 per cent of the space was completed before 1989, according to research by property consultancy CB Richard Ellis.

The steady decline in new supply of such flatted factories coming onto the market since the 1990s reflected the drop in demand for industrial space in Hong Kong as manufacturers moved to the mainland over the past 20 years and new factories built after 1994 now represented less than 5 per cent of total stock, said CB Richard Ellis.

A 'negative take-up' of industrial space of 1.15 million square feet was recorded in 2008 as the rate at which tenants vacated their premises exceeded the rate at which new tenants moved in.

In some cases the space that was being abandoned was already being taken up, either formally or informally, said Albert So, the chairman of the Hong Kong chapter of the Royal Institution of Chartered Surveyors.

'Many creative industries have already been moving into the under-utilised industrial space, legally or illegally. Since some of the usages are outside the conditions of the land leases on which the buildings stand, or of planning approvals, it is good that the government plans to make changes,' said So.

'To encourage the revitalisation of the sector the government should consider waiving fees if a developer applies for a change of land use.'

Lysanne Tusar, the Canadian owner of a wine-making factory in Aberdeen, is an example of a new tenant who has introduced a creative industry into an industrial area.

Tusar came to Hong Kong to set up her Eighth Estate Winery at the end of 2007. After four months of searching, she selected her present address because it was affordable and accessible. The loading on the industrial floor allows for up 50 tonnes of wine barrels.

She pays HK$80,000 a month for four rooms in the building which she uses to store grapes she imports from the United States, Italy or Australia that are pressed to make up to 350 barrels of wine.

The space also provides her with a banquet room and balcony.

'There are so many facilities in industrial buildings. On the outside they may appear a bit strange, but that does not concern me. Inside there are big and empty spaces that are good for business use,' said Tusar, adding that many artists had opened galleries in the neighbourhood for the same reason.

Some newcomers prefer to buy rather than rent and Canadian Chris Dillon invested HK$2.2 million to buy a 3,500 sq ft factory unit in a 30-year-old building in Wong Chuk Hang, Aberdeen, in 2005.

'Relaxing usage restrictions will encourage individuals, artists and entrepreneurs to convert single units in old industrial buildings. This is common in other cities and adds an organic, bottom-up element to the redevelopment process,' said Dillon.

'But anyone thinking of converting an old factory needs to do their homework, especially if their vision is of the elegant cast-iron buildings in New York.

'Many of Hong Kong's industrial buildings are dark, architecturally boring and poorly maintained. And sharing space with a meat wholesaler or a furniture factory offers some unique challenges.'

Dillon, who has been watching the area's redevelopment, uses half of his space as the headquarters of his business and rents out the remaining area for magazine photo shoots.

Property consultants said that the process of revitalising old industrial buildings would be encouraged if steps were taken to enhance their commercial value by relaxing restrictions on their use for commercial or residential developments.

'As creative industries may not be profit-making, it may be difficult for individual industrial space owners to rent their space out,' said Charles Chan Chiu-kwok, the managing director of Savills' valuation and professional service (Greater China).

Chan urged the government to speed up the redevelopment of old industrial buildings by taking steps including lowering the threshold at which the buy-out of a building's owners can be enforced - from 90 per cent of acceptances to 80 per cent or lower.

He also proposed the government set one land premium price for a whole area instead of negotiating with developers individually. 'This will speed up the process,' Chan said.