Will new supply in West Kowloon dampen Hong Kong’s record office rents?
The district will offer 5.2m sq ft of office space – 2.8m sq ft from West Kowloon Express Rail Link development and the existing 2.4m sq ft from the ICC
In his latest budget, Hong Kong’s Financial Secretary Paul Chan Man-po has designated the land plot above the West Kowloon Express Rail Link (XRL) terminal to be up for sale. The site will generate a substantial amount of grade A office space that is more than double the existing stock in the area.
With the opening of the terminal this year, this upsurge of space is set to have a huge impact on the office market in West Kowloon in the short term, which will spread to the entire Tsim Sha Tsui area and other business districts in Hong Kong in the long term.
The topside development project of the XRL will be huge, offering a total gross floor area (GFA) of around 3.16 million square feet. About 90 per cent of that, or around 2.8 million sq ft, will be office space. This, together with the existing 2.4 million sq ft of the International Commerce Centre nearby, will instantly transform West Kowloon from a one-building district to a new business hub that is one subway stop away from the traditional business district in Central.
From a different perspective, this combined 5.2 million sq ft will be three times the GFA of One Island East tower in Quarry Bay. And if we add on the 1.79 million sq ft office space at the Olympic Station one stop away, this new business area is already on par with the office cluster around Taikoo Place on the eastern side of the Hong Kong Island.
What this means is that we will have a new office hub, an alternative decentralised area, just across the narrow waterway from Central, geographically competing with the likes of Island East.
Island East offers a rental advantage over West Kowloon with its prime rents some HK$100 (US$12.74) lower than Central’s, while ICC currently enjoys just about HK$40 discount. The large new supply, however, will narrow that difference.
That said, developing a new business district will require more than careful planning. Cultivating a business-friendly surrounding will also take time, something that may not necessarily work in West Kowloon’s favour at the moment.
What it will benefit from are the XRL station and the high speed train line itself. With potentially only a 20-minute journey from the Futian central business district in Shenzhen, the southern Chinese city next to Hong Kong, there is potential occupational demand from mainland companies looking to tap into Hong Kong’s money market. The improved connectivity will provide a linkage between the best of the Greater Bay Area’s hi-tech industry and Hong Kong’s financial power. And West Kowloon is sitting right at the gateway of this linkage. This is not something that Island East, or any other decentralised area in Hong Kong, can compete with.
Let’s not forget that West Kowloon will also undergo some other massive changes in the coming years, not only is it being transformed into a new business hub, but also a world-class arts and leisure venue. The theatres, museum and park in the West Kowloon Cultural District will be completed one after another alongside the XRL station project. West Kowloon will become a hotspot for local residents and tourists, with iconic buildings and stunning landscape.
Let’s also hope that this planned process will generate a synergy over time with the offices, hotels and restaurants in Tsim Sha Tsui. But at the end of the day, in what form that West Kowloon will evolve really depends on how the planners, developers and the business community work together to provide the right mix of real estate offerings. Nonetheless, the district’s impact on the city’s office landscape cannot be underestimated.
David Ji is director and head of research and consultancy for Greater China