Office Insider WHAT NEXT FOR CENTRAL HARBOURFRONT SITE 3? - FEATURE STORY - Colliers International
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Office Insider
Q3 2020 HONG KONG COMMERCIAL REAL ESTATE AT YOUR FINGERTIPS
FEATURE STORY
WHAT NEXT FOR CENTRAL
HARBOURFRONT SITE 3?
Content
P3 What next for central
harbourfront site 3?
P8 Recentralisation – seizing the
flight-for-quality options in
the CBD
P12 Landlord projects
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Feature Story
WHAT NEXT
FOR CENTRAL
HARBOURFRONT
SITE 3?
by Jason Kwong
Director, Valuation & Advisory Services, Asia
On 26 June, the Government announced that the new Central Harbourfront
Commercial Site Inland Lot No. 9088 (Site 3 1) will be included in the Land
Sale Programme of July to September 2020. Having considered the prime
location of Site 3 and its design requirements, a “two-envelope” approach
will be adopted by the Government for tendering both the
design and price submissions.
Before the official process begins, we take an introductory look at the design
and planning principles underpinning the requirements for Site 3.
1
The Site 3: Key Site No. 3 under Urban Design Study for the New Central Harbourfront completed by Planning Department in 2011.
Page 3 | Colliers International | Office Insider | Q3 2020
Requirements for Site 3
The Conditions of Sale for Site 3 have not been published. However, having studied the Planning Brief, the
Approved Central District (Extension) Outline Zoning Plan and the presentation to the Harbourfront Commission in
May 2020, the requirements for Site 3 are summarised below.
Key development parameters of Site 3
Zoning Comprehensive development area
Proposed Use Comprehensive development/redevelopment of the site for commercial development,
mainly for office and retail use, and a continuous landscaped pedestrian deck, with
the provision of public open space and other supporting facilities.
Site Area 47,967m2 (subject to survey)
Commercial GFA 150,000m2 (i.e. plot ratio of around 3.1)
Non-commercial GFA 21,200m2 (i.e. Public Parking/Transport and GIC Facilities)
Height Restriction 50mPD on western portion; and
16mPD on eastern portion.
1. Longer tender process: 2. Long development
two-envelope tendering process: 2 phases
arrangement development
Having considered the special design requirements of Site 3 will be developed in two phases, where Site 3A
Site 3’s prime location, the Government will adopt a at the northern portion will be developed first to
two-envelope approach in tendering. Submitted bids re-provide the existing General Post Office and the
will be evaluated on the basis of design merits and public car parking spaces. Upon completion of the
premium offers, while bids will be weighed 50-50 necessary facilities for the re-provisioning of the
for design and price. The proposal with the highest existing public facilities, development of the remaining
combined score will be awarded the tender. site at Site 3B will then proceed.
A Tender Assessment Panel comprising of Furthermore, the successful bidder will need
Government officers will be set up to assess the to submit a Master Layout Plan, including an
tenders with the support of technical advisers from implementation programme with a phasing plan, for
the related professional fields. The marking scheme the Town Planning Board’s approval before starting
of the design portion is categorised into three groups: the construction process. It is estimated that the
(1) good design of mandatory features, (2) desirable whole development process might take up to six years,
design features and (3) features beyond those in the or more.
Planning Brief. Accordingly, the tender process is
expected to be longer than normal site tenders.
Page 4 | Colliers International | Office Insider | Q3 2020
Feature Story
3. Restrictive building
height: large portions of
retail spaces
According to the Planning Brief and the Outline
Zoning Plan, Site 3 has a restrictive maximum height
limit of: 50mPD on the western portion and 16mPD
on the eastern portion. The Planning Brief also
suggested an overall stepped height profile descending
from the hinterland side towards the harbourfront.
Furthermore, Site 3 is divided into three portions by
two existing public roads, Yiu Sing Street and Lung Wo
Road (Figure 1).
Under such site configuration, the higher-level spaces
for office use (with harbour/open view) would be
limited. It is expected that large portions of commercial
GFA of Site 3 would be designed for retail use, which
is different from the ex-murray road multi-storey car
park site tendered in 2017.
Figure 1: Site Plan of Site 3
Page 5 | Colliers International | Office Insider | Q3 2020
4. Various design requirements
According to the Planning Brief, the Developer of Site 3 would need to follow various design requirements, of which
details are set out below.
Landscape Deck - A continuous landscaped deck spanning above Lung Wo Road and Yiu Sing Street
(Figure 2) with minimum 6m-wide unobstructed pedestrian access connecting the CBD to
the harbourfront should be provided along the north-south direction.
Public Open Space - A minimum 25,000m2 of public open space (i.e. about half of the site area) should
be provided, with not less than 12,000m2 be provided at-grade. Such public open
space should be designed, constructed, managed and maintained by the Developer.
Reconstructed Star - The old SFCT with original height at about 25mPD is to be reconstructed at its
Ferry Clock Tower original location in the eastern portion of Site 3 with due respect to its original
(SFCT) design.
Other Urban Design - Provision of sufficient separation between buildings to ensure good air ventilation
Considerations and visual permeability.
- Provision of a comprehensive multi-level, barrier-free and convenient pedestrian
network within Site 3 linking with the surrounding areas.
- Maximisation of the at-grade public spaces.
- Adoption of an integrated site planning approach and innovative architectural
design for enhancement of the visual quality for the harbourfront with due
consideration to the setting and design of the City Hall Complex.
- Promotion of high permeability podium design.
Figure 2: Illustration of Site 3 Development with Landscape Deck and Open Space
Source: Urban Design Study for the New Central Harbourfront
Page 6 | Colliers International | Office Insider | Q3 2020
Feature Story Observations of Site 3 According to the latest market estimations, the Accommodation Value of Site 3 is in the range of HK$320,000/m2 to HK$400,000/m2. It would mean a total lump-sum premium of some HK$50 billion to HK$60 billion. The purchase of Site 3 would be challenging for Developers and requires the following considerations: 1. The Planning Brief outlines a range of requirements which makes the design element of this project complex 2. The Developer, or winning bid will have to provide a large lump-sum payment 3. Two-envelope system which requires a lot of professional input for the design proposal 4. Long development process with two phases including approval of MLP 5. Separated site configuration into three portions 6. Restrictive building heights 7. Changing market environment - outbreak of COVID-19, US-China trade tension and social issues in HK It is expected that only large-scale Developers would be able to bid Site 3 in considering the substantial design/ professional input and the financial ability for the large lump-sum premium. Nevertheless, the Developers holding existing surrounding commercial sites nearby would have higher incentive for bidding this strategic plot of land. Apart from the design requirements, special attention should also be drawn to the “restriction on alienation” clause in the coming Conditions of Sale, which would affect the tenderers’ financial arrangement in developing the large-scale site. We look forward to the development of Site 3, which would be a significant land sale and a future landmark in Hong Kong and could improve the enjoyment of Central Harbourfront for the general public. Page 7 | Colliers International | Office Insider | Q3 2020
Recentralisation –
seizing the flight-for-
quality options in
the CBD
by Rosanna Tang
Head of Research, Hong Kong and Southern China
In Hong Kong, the heightened US-China geopolitical tension coupled with
the fluctuation of the COVID-19 pandemic locally has continued to weigh
on the office rental performance amidst rising uncertainties. In 2020,
we forecast overall Grade A office rents will fall 14% YOY, with a bigger
correction of 18% YOY in the CBD (Central and Admiralty). As Hong Kong
Grade A office rents decline, the rental gap between the CBD and other
submarkets will shrink. We believe the narrowing rental gap between
core areas and other submarkets, as well as the upcoming new office
supply around Central, should provide more recentralisation options for
companies to consider within the CBD area.
Page 8 | Colliers International | Office Insider | Q3 2020
Research
The narrowing rental gap
By saying “recentralisation opportunities”, we are not
denying the circumstance that some cost-conscious
occupiers are still looking for cost-control and
business continuity planning in non-core areas during
this rental correction phase. However, the Hong Kong
Grade A office sector is a very dynamic market,
and we have observed that the rental gap in Hong
Kong between the CBD and outer districts has been
narrowing since 2019, mainly due to slower leasing
momentum in core areas. This situation creates
new opportunities in the CBD for the financially
well-established occupiers.
Historically, the CBD net effective rent has been as
low as HK$19 per sq. ft. during the September 2003
SARS market downcycle, displaying a rental gap of
only HK$9 compared to Island East at that time. When
the office market recovered, the rental difference
between the CBD and Island East gradually widened
again, reaching HK$87 during February 2008
(Figure 1).
Net Effctive Rent (HKD per sq feet)
100 87
90
80
61
70
60
50
40 53
30
20
10
0 9
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Figure 1: Hong Kong CBD - Island East Rental Gap
Whilst the COVID-19 challenge is compounding a
weak economy and leasing market, we forecast the
CBD rents to fall by 18% in 2020, after a 6% drop in
2019. With the office market entering a consolidation
phase, CBD rents are declining at a faster pace than
non-core areas, narrowing the rental gap to HK$61
between CBD and Island East (as of June 2020), and
we expect the rental gap to further narrow to HK$53
(US$6.8) by 2022.
Page 9 | Colliers International | Office Insider | Q3 2020
New supply in the next few years will provide more
options
In the previous decade, tight availability and limited new supply in the CBD area has restricted occupiers’ choice
in the core locations. Over the last 5 years, there was only one new Grade A supply recorded in the core area,
Shanghai Commercial Bank Tower, which was completed in 2016 to provide less than 100,000 sq. ft.
Vacancy rate in the CBD has recorded a sub -5% level for almost 6 years between May 2014 and Jan 2020.
However, this situation is gradually changing, as we are expecting to see more availability come up around the core
areas, while the vacancy rate for the CBD has been climbing over the last few months to reach 6.1% in Jun 2020.
Central / Admiralty
20%
16.1%
15%
10%
5.6% 6.1%
5%
0%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Figure 2: Grade A Office Vacancy Rate in Central & Admiralty
Looking ahead over the next few years, the market The scheduled completion of the new supply in
is expecting to see more new office supply emerging Central listed in Figure 3 are well-supported and
in the CBD, adding more quality space in a prime echoed with the expected opening of the Hung
location. Meanwhile, all eyes in the market are Hom-to-Admiralty section of Shatin-and-Central
focusing on the upcoming land sale of the new Link in 2021/22. By then, travelling time and
Central Harbourfront Commercial Site Inland Lot No. distance between the CBD and other new towns,
9088 (Site 3) in the Land Sale Programme of July to neighborhoods and other office submarkets like
September 2020. This site should be the last plot in Kai Tak could be largely shortened. We believe the
Central eligible to be put up for government landsale narrowing rental gap and upcoming future supply
in the foreseeable future. around CBD should present more flight-for-quality
options for MNC professional firms and also for PRC
firms to explore the recentralisation opportunities.
Year Future Supply Area GFA (sq feet) Developer
2021 Peel Street / Graham Street Sheung Wan 333,600 Wing Tai / CSI
2023 Hutchison House Redevelopment Central 493,500 CK Asset
2023 Murray Road Carpark Site Central 465,000 Henderson Land
2024+ Site 3 Central 1.6 mil (commercial area) To be tendered
Figure 3: Key Grade A office new supply in CBD, 2020 – 2024+
Page 10 | Colliers International | Office Insider | Q3 2020Research
A longer-term vision - the Scheme in the GBA. This is another new financial
initiative after the stock and bond connects launched
potential next wave of to increase access to capital flows from the GBA.
PRC demand Whilst most newly set-up companies usually involve
several-thousand sq. ft. of office space before any
Central has always been one of the most favourable organic expansion in the city, the aforementioned
submarkets for mainland Chinese companies. New elements may not necessarily result in immediate
leasing demand from PRC firms had been one of occupancy of large office spaces from the PRC firms.
the key drivers in Hong Kong office market before However, we believe mainland Chinese demand will
the impact of US-China trade war and the COVID-19 continue to be one of the most important demand
pandemic. In 2018, over 800,000 sq. ft. of Grade A drivers over the long term against the bigger picture
office space was leased to mainland Chinese firms. of the GBA initiatives.
Despite the new demand from PRC firms, the market
had become relatively quiet with most occupiers Recommendation
becoming cautious. Recently, there are signs of a
Although we forecast the CBD rents to temporarily
potential return in demand from PRC companies,
decline in the upcoming months as the current
with the market seeing more Chinese firms tapping
rental correction cycle remain. This will not change
into the IPO market to list in Hong Kong (instead of
the status of Central and Admiralty as one of the
the US) due to current tightening of US regulations
most important and resilient office submarkets. The
on listed Chinese companies. According to Nikkei
local workforce prefers a short commute time so
Asian Review’s quoting on UBS, about 42 Chinese
submarkets with good accessibility will always be
companies trading on U.S. stock exchanges qualify
highly-valued. Against this backdrop, we recommend
for listings in Hong Kong. If they issue 5% of their
office occupiers move quickly to take advantage of
outstanding shares in Hong Kong, it would amount to
falling rents in the CBD while planning their real
total US$27 billion.
estate strategies and workplace transformation after
Apart from the potential return of secondary COVID-19. We also recommend companies with a
listing from Chinese companies, closer integration long-term vision in Hong Kong to actively seek for
of the Greater Bay Area (GBA) should also help pre-leasing or flight-for-quality opportunities amid the
to strengthen Hong Kong’s competitiveness. The higher availability and increasing new supply around
preferential policy related to the GBA development the CBD area, while also taking advantage of the
will likely help bring a positive spin to the overall current tenant-favourable market to secure leases
office leasing demand going forward. For instance, with more attractive terms.
on 29 June 2020, the People’s Bank of China, the
Hong Kong Monetary Authority, and the Monetary
Authority of Macao, jointly announced the launch of
the cross-boundary Wealth Management Connect Pilot
Page 11 | Colliers International | Office Insider | Q3 2020208 JOHNSTON ROAD A modern and dynamic office building in Wan Chai featuring a novel design, ultra-high ceilings, plenty of natural lights and engaging city views Page 12 | Colliers International | Office Insider | Q3 2020
Landlord Project
The New Vantage Point in Wanchai
st rd
Floor plan for 21 floor to 23 floor, 208 Johnston Road
A brand-new commercial building within a 5-minute walk from
Wan Chai MTR Station, due to be completed in Q4 2020. With
a modern design outlook, the office building also features
flexible & efficient floor plates, ultra-high ceiling and “Plug &
Work” move-in ready condition.
Located in core Wan Chai commercial area, it is surrounded by
a mix of new trendy buildings with artistic urban redevelopment
right next door. Developed by one of the largest
developers in Hong Kong, Henderson Land, it has the vision to
attract local and global SMEs within the district to upgrade to a
Not To Scale
modern and dynamic office building. For Identification Purpose Only
The Appointed Advisor
As the Lead Marketing and Leasing Agent, Colliers
will advise and execute sophisticated marketing
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handle all enquiries for the Henderson, closely
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tenants complete with optimal tenant mix.
Page 13 | Colliers International | Office InsiderDT Hub
A brand-new office building in Tseung
Kwan O, developed according to the
Revamped Industrial Estate Policy,
featuring an Grade A office specification,
value-added services to the Data Centre
Operators and ICT companies.
Page 14 | Colliers International | Office Insider | Q3 2020Landlord Project
DT Hub is a new developed 15-storey Grade A
office building located in the Tseung Kwan O
Industrial Estate (TKOIE). Typical office floor areas
between 19,680 to 20,072 sq ft gross, ideal for
whole floor occupiers looking for a space that is
modern. Subdivision from 928 sq ft gross also
welcomes ICT start-ups to start business in the
building. The project has been granted occupation
permit and handover to the Tenant in Q3 2020.
Located in a well-established data centre cluster in
TKOIE, DT Hub is surrounded by well-known
operators from neighboring buildings, such as
HSBC, China Mobile, SUNeVision and HKEx. The
building will leverage the strengths of the existing
data centre cluster and the telecommunication
infrastructure in the industrial estate and enhance
the role of Hong Kong as a data technology hub in
the region.
3/F-6/F
7/F-15/F
Sub-divided Office: 900 to 1,800 sq. ft. (lettable area)
Whole floor: 19,600 to 20,000 sq. ft. (lettable area)
Remarks: 4/F & 14/F are omitted.
Page 15 | Colliers International | Office Insider | Q3 2020Colliers International Agency Limited Company Licence No: C-006069 Office Services - Hong Kong 5701 Central Plaza, 18 Harbour Road Wanchai, Hong Kong SAR Tel: 852 2822 0668 Fax: 852 2822 9899 Email: offices.hongkong@colliers.com www.colliers.com/hongkong Page 16 | Colliers International | Office Insider | Q3 2020
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