Property owners, investors and developers are taking advantage of a recent policy relaxation by the Hong Kong government, which seeks to encourage the conversion of old industrial buildings for commercial purposes, to generate higher rents and resale prices. Hong Kong textiles company Lawsgroup, for instance, last week began demolition at Maxwell Industrial Building, a property it owns in Kwun Tong, after receiving approval from the city’s Town Planning Board last month. It acquired the property for about HK$1.4 billion (US$178 million) in 2017 and will redevelop it into a 33-storey office building for leasing, according to chief executive Bosco Law Ching-kit. The redevelopment of Maxwell Industrial Building is expected to be the first such project after the policy change, which was announced by Chief Executive Carrie Lam Cheng Yuet-ngor in October last year. Its new direction is aimed at increasing land supply in Hong Kong. A revitalisation plan for industrial buildings was first announced in October 2009 by the government. It allowed changes in their use for office, retail or hotel purposes but was stopped in 2016. The new scheme has been expanded and allows for an extra 20 per cent in gross floor area during the conversion of whole industrial buildings built before 1987 for commercial purposes outside residential areas. The Maxwell project is expected to be completed in 2022. Under the new policy, Lawsgroup will also gain additional floor area of 40,000 sq ft, for a total of 270,000 sq ft, after paying a premium for conversion of land use. Law said the company did not yet know how much it would pay as premium. Can widespread industrial building conversions fill Hong Kong’s housing shortfall? “We bought the building in 2017 due to its location in Kwun Tong, which is going to be a new commercial centre under the government’s plan to turn the old industrial district into a new business district. The 20 per cent extra floor area is a surprise bonus,” he said. Thomas Lam, executive director at property consultancy Knight Frank, said the building, when completed, may be worth up to HK$20,000 per square feet, which will value the property at HK$5.4 billion. The value of transactions involving industrial buildings surged by more than 13 per cent to HK$60.4 billion in 2018, from HK$53.2 billion in 2017, while the number of transactions jumped by 11 per cent to 5,620 deals last year, according to Hong Kong-listed industrial and commercial property agency Midland IC&I. Hong Kong’s industrial buildings worth a closer look, real estate professionals say And prices and sales activities have been boosted further by the policy change. Alvan Chan, a director at Midland IC&I, said: “Prices for industrial spaces in Kwun Tong have risen by 10 per cent, and the number of transactions have jumped 50 per cent in the first two months over the same period last year.” It is not surprising then that owners want to cash in. A Chinese family has put two industrial buildings in Chai Wan worth about HK$2.5 billion up for tender. Located at 4 and 5 Fung Yip Street, the Gee Tung Chang Industrial Building and Gee Wing Chang Industrial Building could be redeveloped into a commercial project with 360,000 sq ft of space, according to sales agent JLL. “Demand for industrial buildings in Chai Wan is growing after the government incentive. The site will have a sea view and will attract bidding interest from developers and investors,” said Joseph Tsang, managing director and head of capital markets at JLL. Samuel Lai, senior director for advisory and transaction services, industrial and logistics, at CBRE Hong Kong, said industrial buildings that are single owned and were built before 1987 will be targeted by investors. ‘The tight vacancy environment in the office market, and the growing demand for high-specification industrial space from technology and other new industries, will encourage landlords and developers to consider redeveloping old industrial buildings for commercial and industrial use,” said Lai.