New World Development plans US$3.2b ‘emerging industrial cluster’ in Kowloon West
New World Development is planning to invest an estimated HK$25 billion (US$3.2 billion) to create an “emerging industrial cluster” that will feature co-working concept developments in Kowloon West designed to woo innovative technology start-ups.
The developer, chaired by Hong Kong’s third richest family of Henry Cheng Kar-shun, unveiled the plan after it successfully acquired a business site for HK$2.97 billion (US$397.2 million) in Cheung Sha Wan by government tender last week, raising its land bank in the area to 2.1 million square feet.
“Hong Kong developers have to be more creative in their new developments in response to the global trend of the co-sharing economy,” said Stanley Wong, executive director of capital markets at CBRE.
For instance, monthly rental expenses for a 20,000 sq ft grade-A office building in core Central would cost HK$190 per sq ft, or HK$3.8 million.
“Not many corporates can afford such high rental expenses. We have seen an increasing number of big corporates like banks and insurance companies relocate part of their operations to co-working offices as a way to save costs,” he said.
CBRE ’s Asia Pacific 2017 Occupier Survey showed 64 per cent of multinational corporations occupiers plan to use some form of third party office space, including co-working space, by 2020. Cost savings was cited as a driver, followed by leasing flexibility and collaboration.
Wong believes Cheung Sha Wan, which has transformed to office from industrial use in the past 10 years, should be a suitable as a testing ground for the sharing concept.
The site, near the Lai Chi Kok MTR station, will draw companies as it is closer to the Hong Kong International airport than comparable sites on Hong Kong Island, he said.
Higher rental yield is another incentive likely to encourage more property giants to enter the sector.
Wong expects the co-working concept to drive up rental yields because tenants are willing to pay a premium in order to enjoy greater leasing flexibility while also saving on decoration costs.
“Developers will also act as advisors or angel investors once they find some start-ups with potential development,” he said.
“Unlike traditional office terms, users of co-working spaces are not bound to lock-up by a fixed leasing period like two years or more,” he said. “They can retreat or expand in accordance to market changes.”
Adrian Cheng Chi-kong, executive vice-chairman of New World Development said in a company statement that it plans to build a grade-A office at the junction of Wing Hong Street, Yu Chau West Street and Wing Ming Street.
“Together with another three sites the firm owns in the area, we will create an ‘New World Emerging Industrial Cluster’ with a gross floor area of 2.1 million sq ft to generate synergies in its future development projects in the area,” he said.
A company spokesman added that it plans to add co-working elements and an incubation centre after a trail period to assess demand from start-ups.
Victor Lai, chief executive of Centaline Professionals, said developers have been exploring innovative ideas to generate demand and higher rental rates.
“Developers have to think of who are the users and their affordability for the next 10 years when they come to design a new project. The co-sharing concept is definitely a major global trend,” he said.
Together with three business sites and one residential site in the area, New World has invested HK$15.9 billion on land acquisitions since February.
Lai estimates the total development cost at HK$12,000 per sq ft when including construction, interest expenses and land costs. The whole “emerging industrial cluster” will involve a HK$25 billion investment, he said.
