Developers are expected to seize opportunities to venture into Kowloon East as the government expedites its transformation into Hong Kong’s next central business district by releasing two large commercial sites in the Kai Tak area that together could be worth more than HK$15 billion at tender. The Kai Tak area, which is a core part of the next-generation CBD that will be double the size of Central by 2020, will be under the spotlight in the government’s land sale programme for the financial year to March 2017. “Office demand in Kwun Tong and the Kai Tak area will grow in coming years as decentralisation away from Central is a major trend for corporations,” said Victor Lai Kin-fai, chief executive of consultancy Centaline Professionals. He said he expected a big change in the area once all the grade A office developments, hotel projects and residential blocks were completed over the next six to seven years. Eleven of the 40 government sites for residential, commercial and hotel use in the next financial year’s land sale programme are located in the Kai Tak area. They comprise seven residential, two commercial and two hotel sites. The investment risk in commercial projects will also be less than residential developments Vincent Cheung, Colliers International The government aims to turn the Kai Tak area into a “city within a city” complete with sustainable and smart-city features. Centaline Surveyors estimated a 190,522 sq ft commercial-hotel site (Kai Tak Area 1F site two) would fetch a bid of HK$9.55 billion, or HK$5,000 per square foot. “It will be the most expensive commercial land in terms of total amount in the Kai Tak area for the next financial year,” it said. The second commercial lot (Kai Tak Area 1E site two) was expected to fetch HK$5.48 billion, or HK$5,000 per square foot. Vincent Cheung, executive director for valuation and advisory services in Asia at Colliers International, said he expected fierce bidding for commercial sites as next year’s land supply in the sector would be the largest in recent years. “The investment risk in commercial projects will also be less than residential developments,” he said, referring to a string of government property curbs aimed at stabilising home prices. In the past three years, he said growing numbers of mainland companies and international corporations had bought new office towers in Kowloon East as their headquarters. In 2013, Wheelock Properties sold the West Tower of the One Bay East grade A office development in Kowloon Bay to Manulife (International) for HK$4.5 billion, or HK$8,789 per square foot. A year later, Wheelock sold the East Tower to US banking group Citi for HK$5.42 billion to accommodate its 4,500 staff scattered around the city. In January last year, The Link Reit won a large commercial site in Kwun Tong with Nan Fung Development for a higher-than-expected HK$5.8 billion. The site could yield a total gross floor area of 883,897 sq ft, with the price tag representing HK$6,630 per square foot. Although the vacancy rate in Kowloon East’s office market stands at 7 to 8 per cent now, Cheung believes the situation will improve in coming years. “It is not a concern as the vacancy rate will drop after most of these new buildings are gradually taken up by office tenants,” he said. Currently, office rents in the area were HK$35 per square foot net, representing an annual investment yield of 3 per cent, he said. Cheung predicted the commercial land could fetch HK$6,500 to HK$6,800 per square foot in land cost. Taking into construction cost of about HK$4,000 per square foot, he said the all-in development cost could go as much as HK$10,800 per square foot. He expects the winning developer to pitch the office space at HK$12,000 to HK$13,000 per square foot when it is offered for pre-sale. Centaline Surveyors estimated the other two hotel sites in the Kai Tak area could be worth up to HK$5.2 billion in total. “There is room for development of five-star hotels in East Kowloon as more international corporations setting up headquarters there will strengthen demand for hotel rooms,” Cheung said.