Putting on the Ritz
Lai Sun Development is set to offer one of Central’s few new office addresses
| Text : Elizabeth Kerr | Photo : www.thinkstockphotos.com |
Back in 2008 back when the Ritz-Carlton Hotel shut its doors for good,there were probably only a fewpundits that considered the possibility thatthe land would be given over to public greenspace or become a low-density boutiquehotel. Located at 3 Connaught Road, spittingdistance for the most part from IFC, TheLandmark, Prince’s Building, AlexandraHouse, Exchange Square, Central Stationand the Airport Express facing the harbour,the chances of the site becoming home toanything other than Grade A office spaceseemed remote.
It comes to no one’s surprise that Lai SunDevelopment has earmarked the land for anew office tower, that upon completion willbe, “a high rise Grade A commercial buildingfor office use with podium banking floors andbasement car parks.” Wedged between theHong Kong Club building and AIG Tower, thetower could be upwards of 225,000 squarefeet of office space if Lai Sun adheres toexisting zoning regulations and will require noland premiums or lease modifications.
The idea for redeveloping the site as an officetower dates back years. As early as 2006Lai Sun chair Peter Lam stated, at an interimresults statement, that, “We are studying thepossible redevelopment of the Ritz-CarltonHong Kong site,” adding, “Given the strongdemand for prime office premises and thedearth of new supply in Central, prime officerentals in Central are likely to remain firm andcould increase further,” as it was relayed inThe Standard. Clearly, not a lot has changedin the intervening four years.
News on the development is hard to come by,but Lai Sun’s website states that demolitionwas completed at the beginning of last year,and the foundation was laid early in 2010.Anyone getting on a ferry these days ordriving that stretch of Connaught is intimatewith the scaffolding that now dominatesthe spot. It is expected the building will befinished in early 2012. That date can’t comequick enough.
Lai Sun is capitalising on surging office rental prices and a supply crisis and a continuing, some believe rising, demand. The aforementioned dearth of supply in Central in particular is going to put Lai Sun’s tower, whatever it may be called, at the top of many a wish list.
Lai Sun currently owns three major office rental properties: Causeway Bay Plaza 2, Cheung Sha Wan Plaza and Lai Sun Commercial Centre, which as of January 2010 boasted steady incomes — Lai Sun posted a drop in rental income of under 1 percent from 2009 — and 96 percent occupancy according to the company’s 2009-2010 Interim report.
The Ritz-Carlton site is actually a joint venture with a subsidiary of the China Construction Bank, which will also take space for its Hong Kong offices in the $1.1 billion development. But a tower like it will be a first for Lai Sun. Is it out of their league? “We believe their intention to enter the prime office market in Central has been strong as demonstrated by the acquisition of the ex-Furama Hotel (now AIA Central) in the past decade and the current redevelopment plan,” theorises Simon Lo, director of research and advisory at Colliers International. While Lai Sun’s A-game remains to be seen, ultimately it boils down to, once again, the old real estate adage: location, location, location. “The average vacancy rate for Central buildings overall fell 16 basis points over the quarter to 3.7 percent, and down 1.1 percentage points compared to December last year. Vacancy in the A1 buildings remained low at below 1 percent,” stated CB Richard Ellis’s MarketView for Hong Kong offices in the second quarter of 2010.
If the standard of the eventual Ritz-Carlton site tower is a new direction for Lai Sun, it may not matter. Colliers International’s July Market Overview for the office sector lists Sun Hung Kai Properties’ KCC Phase II as the only other major Grade A office development expected to be ready by 2012. Office developments coming in 2013 and later — which include Swire’s Taikoo Place addition, Hysan’s 77 Leighton Road, Billion Development’s and Sun Hung Kai’s Kwon Tong properties and Hutchison’s Harcourt Road projects — are still only in the planning stages and are, obviously, not in Central. “With reference to the historical average completion rate of about 450,000 square feet per annum, Central is going to see a severe shortage of brand-new Grade A office stock in the next two years. Total space available of Ritz-Carlton Hotel redevelopment … can only partly satisfy the market demand in our view,” said Simon Lo, director of research and advisory at Colliers International. That could make Lai Sun, for all intents and purposes, the only game in town. The Ritz’s old home is going to be the one to watch.
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