The reopening of the mainland China border in January helped bolster visitor numbers, with the figure reaching 4 million for the arts hub and 1.6 million for the Palace Museum, contributing to an increase in income in operations, rentals, retail, and food and beverage, as revealed at a board meeting on Tuesday.

The cultural district’s operating income excluding interest and investment earnings jumped fivefold to HK$553 million in 2022-23 from HK$108 million a year earlier. Fundraising income also leapt to HK$197 million from HK$27 million previously.

Authority CEO Betty Fung Ching Suk-yee said the arts hub had done well in terms of its cost recovery rate – a measure of how much an institution contributes to its operating cost – which stood at 46 per cent and 44 per cent for M+ and Palace Museum respectively, similar to established venues in other countries.

“Like other arts and cultural facilities across the world, it is challenging to break even,” Fung said.

“While the long-term strategy is to support the operations of arts and cultural activities with commercial earnings, most income-generating facilities are not ready yet, which led to the financial predicament the district is now facing.”

Fung warned that the one-off government endowment of HK$21.6 billion granted in 2008 would run out by March 2025, despite the “satisfactory” financial performance of the arts hub and effective cost-cutting measures.

As Hong Kong emerged from the pandemic, business rentals at the hub recorded a near fourfold year-on-year increase. Fung noted that retail, dining and entertainment sales had a 75 per cent increase and “exceeded expectations”.

In August, authority chairman Henry Tang Ying-yen said the arts hub had submitted a plan to the government on how it could use the district’s land to become financially self-sufficient.

He added that the authority board would refrain from seeking government funding, but warned further budget cuts would not be possible after two years without putting a halt on performances and exhibitions at M+, Palace Museum and Xiqu Centre.

Fung previously said a 2016 government-approved business model, which focused on developing office space, had become a significant challenge due to the pandemic and the rise of remote work which could lead to an excess of supply.

In response, the authority is reconsidering the commercial aspects of land that has not yet been put up for tender and might shift away from the build-operate-transfer and income-sharing model adopted for a plot tendered late last year.

In November last year, developer Sun Hung Kai Properties was awarded a 65,000 square metre (700,000 sq ft) area for an estimated HK$10.5 billion for an operating period of 47 years.

Under the build-operate-transfer model, the firm will transfer ownership of the development to the authority in 2070. The completion of three grade-A office towers is expected in 2026.

Vincent Cheng Wing-shun, chairman of the Legislative Council’s culture panel, said that while the district’s expenditure had fallen, it was still sizeable.

“Of course, the increase of the different incomes is good, but there is still a considerable difference between its income and expenses,” he said, stressing the importance of finding a sustainable solution to enable the long-term development of the cultural district.

“I wonder if there is still room to improve its earnings. Entrance fees might not be the biggest part of its income, but have all avenues been exhausted to raise income from F&B, retail, and rentals? I think there might still be room to do more.”

While Cheng said an open attitude would be adopted to review any proposals for funding the hub, he added that he very much hoped it would remain one complete entity, referring to rumours of a potential sell-off of plots of land to ease financial woes.

He added that it was not impossible for Legco to approve funding for the arts hub, as it was also important for Hong Kong to develop into an East-meets-West centre for international cultural exchange, as envisioned under the central government’s 14th five-year plan.