Former Hong Kong airport likely to become target for developers eyeing key source of land

The former Kowloon home of Hong Kong’s airport, Kai Tak, which is a core part of the city’s next central business district (CBD), will become an acquisition target as developers bet on corporates moving from Central as rents soar, according to industry experts.

Victor Lai Kin-fai, the chief executive of consultancy Centaline Professionals, said the Kai Tak new development area would overtake Tseung Kwan O – which is about 10km further east – as the biggest source of new supply of homes and offices.

“Since all sites in Tseung Kwan O have been sold. The new development areas in Kai Tak will become the focus among developers at home and from the mainland,” Lai said.

Two of 11 sites, comprising seven for residential use, two for commercial premises and two hotels, in the Kai Tak area have been sold in the land sales programme for the financial year to March 2017.

One, a residential site, will yield a total gross floor area of 654,602 square feet. It was sold to HNA for HK$8.83 billion, or HK$13,500 per square foot on November 3.

The second plot, designated for the development of the city’s first twin towers, was bought by Sogo department store operator Lifestyle International Holdings for HK$7.39 billion on November 23, a record for commercial land in terms of total value.

Denis Ma, the head of research for Hong Kong at JLL, estimated the total development cost for the Lifestyle site will amount to HK$12,000 per square foot, including land cost of HK$6,733 per square foot.

“It will be much cheaper than current office space in Central which goes for an average of HK$30,000 per square foot,” Ma said.

With scattered ownership of office projects in Kowloon East, he said landlords would have to release their projects at competitive rents or sale prices owing to likely intense competition in the future.

However, office rentals in Central, where such space is in the hands of just a few landlords, would be less volatile, Ma said.

The Lands Department will offer another two residential sites in Kai Tak for sale next month. The first site is Kai Tak Area 1L site 3, which will yield a total gross floor area of 397,967 sq ft. It is expected to fetch HK$3.98 billion, according to Midland Surveyors. The tender will close on December 16.

The second site, Kai Tak Area 1K site 2, will provide a total gross floor area of 574,259 sq ft. It is believed to be worth HK$4.59 billion. This tender closes on December 23.

Since 2013, eight plots in the Kai Tak area have been sold.

The key objective of the Kai Tak development area is to house a population of up to 90,000 and create more than 83,000 jobs by making it the core part of the second CBD, which aims to provide 62.43 million sq ft of office space, double that of Central by 2020.

The proposed financial centre takes in an area that includes Kwun Tong, Kowloon Bay and the old airport site. It is part of former chief executive Donald Tsang Yam-kuen’s plans, announced in his policy speech in October 2011, to increase the supply of office space and maintain Hong Kong’s competitiveness.

“We will see some interesting developments in this area,” Ma said.