Originally Posted by hkskyline
District is centre of attraction kowloon east
The area has transformed itself from a rundown industrial site to a prime office location that is luring major players
27 March 2009
South China Morning Post
Kowloon East is emerging as a new commercial hub for local and international companies after undergoing a major transformation over the past decade.
From a predominately industrial area, with aged and even rundown factory buildings more than 10 years ago, the district has upgraded significantly and now boasts a growing number of office towers equipped with some of the most advanced facilities and building specifications in Hong Kong.
The new commercial hub is being developed largely around Kwun Tong and Kowloon Bay, the two main sub-districts that are well connected by the MTR and other public transport networks.
The pace of transformation increased particularly in the past five years when developers invested billions of dollars in acquiring new sites for office use or redeveloping old buildings into new office towers.
Sun Hung Kai Properties (SHKP) is one of the leading developers which has helped drive the district's dramatic changes. The company's Millennium City portfolio in Kwun Tong provides five gradeA office towers with a total floor area of nearly 3million sqft. The first tower - Millennium City 1 - was completed in 1998 and the latest addition - Millennium City 6 - came on the market in 2007.
Another phase of the development is under construction. More than 5million sqft of grade A offices have been completed in Kowloon East over the past two years. Among the newly completed high-rise office buildings are Enterprise Square5, developed by Kerry Properties, One Kowloon, built by G.S. Properties, Exchange Tower, by Sino Group, and Manhattan Place, by Manhattan Realty, in Kowloon Bay.
The latest projects completed in Kwun Tong are Landmark East built by Winsor Properties Holdings and Kwun Tong223 by Henderson Land Development.
With more quality office buildings at substantially lower rentals than those in core business areas, an increasing number of companies from different sectors including banking, accounting, retailing, logistics and other sectors are relocating their operations from other parts of Kowloon or Hong Kong Island to Kowloon East.
These include PricewaterhouseCoopers, Industrial and Commercial Bank of China, Hang Seng Bank, Standard Chartered Bank, Bank of East Asia, MTR Corporation, DHL and Dah Sing Life.
Office rentals in Kowloon East had risen steadily along the economic growth and business expansion between 2003 and the first half of last year despite the significant increase in new supply. Like other areas of Hong Kong, however, rents in the district have fallen sharply since the global financial crisis and the subsequent world recession.
According to Knight Frank, net effective rents of grade A offices in Kowloon East ranged between HK$16 and HK$24 per sqft a month in February, down 33.7 per cent from HK$27.8 per sqft at the market's peak in May last year.
Xavier Wong Kit-hung, a director and head of research at Knight Frank, said many companies were downsizing and the global recession had forced them to consider moving their operations to non-core areas to cut costs.
She said Kowloon East would contribute about 35 per cent of the new office supply in Hong Kong this year and next year, and she expected the district to remain a favourable location for companies looking for lower rental costs given the large amount of office completions.
According to Knight Frank, the supply of new offices in Kowloon East is expected to reach about 1.9million sqft involving five developments. The projects in Kwun Tong include Millennium City phase seven, by SHKP, Crocodile Centre redevelopment, by Lai Sun Development, and a development in Shing Yip Street by Billion Development.
In Kowloon Bay, Sino Group is redeveloping the site of Po Hing Centre, while Billion Development is building a new office tower on the site of the former Sing Tao Building.
With the weakened economic environment and companies focusing on cost savings, landlords in Kowloon East, like those in other core and non-core districts, have to offer competitive rents to attract tenants. The large supply in the district, with a high vacancy rate of about 30 per cent, means that more aggressive and attractive leasing packages are needed to compete for occupiers.
According to Colliers International, average rental of grade A offices in Kowloon East was between HK$14 and HK$23 per sqft as of February, a drop of about 33 per cent from a year ago.
The vacancy rate rose to 29.3 per cent, up 13.42 percentage points compared with February last year. The vacancy rate in Kwun Tong was 36 per cent, and in Kowloon Bay was 29 per cent.
Simon Lo Wing-fai, director of research and advisory at Colliers International, said that due to the availability of new offices and the large rental difference between Kowloon East and core business districts, several companies were tempted to relocate, downsize and consolidate their operations to generate significant rental savings.
"Tenants will be lured to relocate due to the steep rental difference between central business district locations on Hong Kong Island and Kowloon East. For example, it is nearly a HK$60 rental difference between Central and Kowloon East," he said.
With the softened market conditions, landlords in Kowloon East were offering competitive rentals with longer rent free periods and even providing tenants with financial subsidy on office fitting-out, he said.
In the long term, Mr Lo said Kowloon East would be a decentralised business hub and a tourist destination with the gradual transformation of Kowloon Bay and Kwun Tong, and the proposed cruise terminal at Kai Tak in the vicinity.
The Kwun Tong town centre redevelopment, undertaken by the Urban Renewal Authority, would provide a further booster to the upgrading of the district, he said.