Located in Kowloon East, it’s one of the city’s oldest industrial districts but these days there’s a vibrant mix of industrial buildings, warehouses and flatted factories alongside newly redeveloped skyscrapers and shopping malls.
The shift has been a long time coming. In 1998, the area’s first Grade-A office complex, Millennium City, which was redeveloped from an old bus depot by Hong Kong property giant Sun Hung Kai Properties, opened to tenants. And in 2005, the developer’s trendy apm mall and Grade A office – Millennium City 5, formerly an old industrial building, began drawing a younger generation of shoppers and more office workers to the area from day through night.
With more redevelopment projects spreading at pace, in part due to the government’s revitalization schemes, the transformation has only continued to accelerate.
“The area is nearly unrecognizable today compared to the early 2000s,” says Ariel Tam, senior director for Hong Kong capital markets at JLL. “And investors continue to take notice.”
The total industrial properties transaction volume for deals exceeding HKD20 million (USD2.6 million) for Kwun Tong was HKD 3,179 million (USD410.2 million) for the whole of 2019, compared to HKD 8,885 million (USD1.1 billion) in 2018, data from the Hong Kong Stock Exchange and Land Registry compiled by JLL showed. In January 2020, a portfolio of 10 units at King Wan Industrial Building on Hung To Road was sold for HKD 102.6 million, or USD13.2 million.
Mega redevelopment projects
At the centre of the Kwun Tong’s redevelopment is the biggest urban renewal project ever undertaken by Hong Kong’s Urban Renewal Authority. The billion-dollar Kwun Tong Town Centre Project is creating 530,000 square feet of Grade-A office space.
There’s also the redevelopment of the former How Ming Street bus depot project by Sun Hung Kai Properties. The site, which will comprise of two commercial towers and a shopping centre, will cover a total about 1.2 million square feet, complementing the developer’s existing series of Millennium City developments across the street.
“The town centre redevelopment project that is taking place in phases and the government’s ‘Energizing Kowloon East’ pilot scheme covering the entire district will extend Kwun Tong’s long-term transformation,” says Tam.
Chic mixed-development projects such as KOHO and The Wave have emerged from former industrial spaces and cater to the creative industries. KOHO is an industrial building turned commercial space for start-ups and small business owners. The former Cheung Kong Electronic Building has transformed into The Wave, where event and co-working space coincide with retail outlets and restaurants.
While the coronavirus pandemic will be a hurdle for some markets and industries worldwide, there is an expectation that the weight of capital hunting for yield in commercial real estate will continue to support opportunities in areas like Kwun Tong, says Tam.
“Investors are looking for growth, and it is emergent districts like these that many investors see as offering that potential.”
A Hong Kong government scheme incentivising the redevelopment of industrial buildings has been a major driver of the changing vibe.
Under the government’s current revitalization scheme, industrial buildings built before 1987 and sitting outside residential zones are eligible for redevelopment with their non-domestic plot ratio relaxed by up to 20%, subject to the approval of the Town Planning Board. This has piqued investor interest in aged industrial buildings in Kwun Tong, alongside existing schemes waiving various fees.
The total floor area for industrial buildings in the Kwun Tong district was estimated at 39 million square feet at the end of 2019, according to Hong Kong’s Rating & Valuation Department.
“You can find abundant stock there,” says Nelson Wong, Head of Research, Greater China at JLL. Investors will tend to look for properties with redevelopment potential considering the lease restrictions and market potential of various uses, he adds.
There have been more than 10 applications to redevelop industrial buildings in Kwun Tong – the most among Hong Kong’s districts – with more than half of these approved since the government re-launched its revitalisation scheme for industrial buildings in 2018.
Notable industrial buildings in the area – such as Maxwell Industrial Building and Wing Hing Lee Industrial Building – have been approved for redevelopment and are expected to become new landmark commercial blocks.
In March 2019, Hanison Construction, which specialises in adding value to old buildings, purchased Hay Nien Building on Tai Yip Street for a reported HKD489 million (USD63.1 million). The company recently made an application to the Town Planning Board to redevelop the building into a hotel with relaxed plot ratio and building height restrictions.
“We will continue seeing this trend of converting industrial buildings in the district for commercial use. Most new office supply on the market in Hong Kong over the next three years will be in Kowloon East, which will boost the transformation of the area into Hong Kong’s second CBD,” says Tam.