Analysis | Thank you Henderson: Record Murray Road price lifts property values in the neighbourhood
Cheung Kong Property, whose Hutchison House is across the Lambeth Walk from Murray Road, could see its net asset value per share boosted by HK$5, according to JPMorgan.
Henderson Land Development, owned by one of Hong Kong’s wealthiest families, may have done a favour to every land owner in the Murray Road neighbourhood in downtown Central, when it paid a record price for the largest commercial plot to go on market in two decades.
The record HK$23.28 billion (US$3 billion) price paid for the Murray Road land parcel, which topped professional valuers’ highest estimate by almost 6 per cent, would boost Cheung Kong Property Holdings’ net asset value per share by HK$5, according to an analysis by JPMorgan. Cheung Kong, owned by the city’s wealthiest businessman Li Ka-shing, owns Hutchison House, a 22-storey office tower across the Lambeth Walk from Murray Road.
Besides Hutchison House, another building in the vicinity is the CCB Tower, developed by a consortium between China Construction Bank and Lai Sun Development.
Henderson on Tuesday beat back eight rival developers, including a couple of Chinese real estate companies, to buy Murray Road. It plans to develop the site, where a five-storey public car park currently stands, into a “landmark” office tower by 2022, according to a statement by vice-chairman Martin Lee Ka-shing.
Henderson said its total investment, inclusive of the land cost, may exceed HK$26 billion, or HK$55,914 per square foot. The projected investment would be closer to HK$30 billion, according to a projection by Bank of America Merril Lynch, assuming HK$7,000 per sq ft of construction cost.
With a spot rent of HK$140 per sq ft per month, Henderson could get a net rental margin of 2 per cent BoA-ML said.
“Investors’ reaction to Henderson’s win will be lukewarm,” the bank said.
Investors agreed, sending Henderson’s shares falling by as much as 2.9 per cent, their biggest intraday decline in seven months, after the tender result was announced. The stock closed the day 1.5 per cent lower at HK$49.45. Cheung Kong’s shares rose 1.2 per cent to HK$57.45.
April office rents in Central have risen almost 1 per cent compared with March, and are expected to rise further after Murray Road’s record price, JLL said.
“We expect Murray Road to be developed to suit the price tag within the premium end of the market where there is currently strong pent-up demand,” said Alex Barnes, head of markets at JLL. “The fact that it could be available to the wider occupier market is a positive for Central.”
Based on that projection, a 10,000 sq ft (929 square meters) office would cost HK$1.4 million (US$180,000) per month to rent, or HK$70 million to own.
Mainland Chinese companies, which already occupy an estimated 56 per cent of all new commercial office leases in April, are the most likely tenants that can afford these rents, and will continue to underpin leasing activity in Central, JLL said.
“The sale of Murray Road shows the strong demand for Grade A offices in the Central and Admiralty areas,” said the Secretary of Development Eric Ma Siu-cheung. “Despite having a total sale of half a million square meters of gross floor area of commercial and industrial land, the market still has a strong demand for commercial sites.”