Hong Kong Developers in $1.Five Billion Battle for Car Park
The latest battlefront in Hong Kong’s red-hot property market comes from unexpected quarters: A drab, 1970s multi-storey car park.
Murray Road car park is the very first plot of commercial land in the Asian hub’s Central district to come up for redevelopment in twenty years. Tendering to redevelop the site opened at the end of last month and competition among Hong Kong and Chinese developers is expected to be fierce. The tender process finishes in mid-May. The site’s expected to fetch around HKD12 billion (USD1.Five billion), albeit moneyed mainland Chinese developers could thrust this sum much higher.
Whichever developer wins will get the honor of demolishing said car park and making another addition to the city’s crowded skyline. The height limit for this part of town is one hundred ninety meters or about fifty floors.
Some commentators don’t seem coaxed this site is worth the effort, however. JPMorgan analyst Cusson Leung is worried that frantic bidding could shove up costs and reduce the fresh development’s expected annual comeback, or cap rate, to as low as 2%. Cap rates elsewhere in Central Hong Kong are closer to 4%.
What’s more, Leung just thinks this plot is overrated. His detailed argument is below, but it essentially boils down to the fresh building having a poor view.
To the North of the Murray Road Carpark site (direction of the Victoria Harbor), it is blocked by three buildings, namely AIA Central, Hutchison House and Bank of America Tower with building height of 146m to 190m. Cheung Kong Properties has already obtained approvals on its redevelopment plan of Hutchison House in two thousand eight and two thousand twelve to either forty seven or forty one floors respectively. We believe it is a safe assumption that if CKP does not win the site, it will redevelop Hutchison House to its utter height, thus the three buildings will be almost blocking the entire sea view of the Murray Road Carpark site.
Still, even if the expected cap rate on this project is low, the eventual sale price of the plot will be a good barometer on request for office space in central Hong Kong. If it’s higher than thought, other landlords will see good reason to jack up their own rents.
When it comes to Hong Kong property, the JPMorgan analyst chooses office landlords over residential developers. His top pick is Singapore-listed Hongkong Land (H78.SG), because 60% of its assets are exposed to office space in Hong Kong’s Central area. He also likes Cheung Kong Property (1113.HK), which will get a windfall when it eventually strikes a deal to sell its The Center skyscraper in downtown.