Aberdeen Emerges As A Rising StarJust a few years ago, the Aberdeen area was on everyone’s conversation board. The warehouses were a potential goldmine. The conversion possibilities were endless. The MTR would mark a wholesale change in the neighbourhood. Fast-forward a few years and not much has changed. The BAT building is a cool landmark, and new hotels (L’hotel Island South, Ovolo) have moved in, but not much else has changed. Some funky retailers have taken up space but vacancy signs dominate building windows. Where did the excitement go?

Hidden Activity
In truth, it hasn’t gone anywhere — unless you’re in the residential market. The little fishing village on the southern side of Hong Kong Island is now a popular tourist spot, most of who flock there to check out the Jumbo floating restaurant in the village in Aberdeen Harbour. The Aberdeen Boat Club is also a welcome alternative to the pricier and usually full Hong Kong Yacht Club for boat owners, and the reservoir park is a favourite weekend destination for locals, often involving barbequing.

Aberdeen has always been something of an oddball when it came to Hong Kong real estate. Heavily industrial, many of the buildings have been repurposed (however not rezoned) with the widespread elimination of industry as Hong Kong transformed into a service economy. As part of the Southern District, the population is as robust as anywhere in Hong Kong — but not that many people actually live in Aberdeen. Nonetheless, the Canadian International School, the Singapore International School, the Victoria Shanghai Academy, Montessori School and South Island School are among the high profile educational institutions in the area, and that doesn’t even include the equivalent Chinese and public schools.

Despite all this, there is a fair amount of investment activity in Aberdeen. The government’s frequent hints that mass revitalisation of older spaces, continuing demand for industrial space (regardless of the white collar nature of business now) and of course the imminent MTR station have all led to a surge in investment in the district. But traditional industrial tenants have been chased to other parts of the city, precisely due to the higher rents stemming from the expected transformation.

And this transformation is already underway, despite what things look like to the naked eye. “New rent could be 2 to 3 times higher than that being achieved prior to revitalisation, and such revitalised office or retail spaces can be easily found across Hong Kong, in places such as Kowloon, at relatively lower rents,” explains property services provider Vigers Managing Director Raymond Ho. “Three areas on top of the list for industrial land provision include Tsing Yi, Tuen Mun West and Hung Shui Kiu, not Wong Chuk Hang at all, suggesting Wong Chuk Hang’s industrial role will be fading out.”

Patience Needed
According to Ho, end-users dominate the market in Aberdeen, the way they do in the residential sector anywhere, because of the Double Stamp Duty imposed on short-term investors. Those investors may be disincentivised from Aberdeen anyway, as yields are currently sitting at roughly 2.5 to 4 percent, leading to high holding costs.

Which all leads to Aberdeen, and Southern District in general, slowly becoming yet another office district, one that has the tacit approval of the city’s major players. “A deal is maybe going to be closed regarding an office building in Aberdeen to be sold by Cheung Kong for $3 billion, after the developer paid a $100 million land conversion premium to the Government earlier,” notes Ho. “If the deal is successfully closed, it will be the biggest office transaction year-to-date in Hong Kong.” On top of that, Henderson Land started pre-sales on its 25-storey office tower — Global Trade Square in Wong Chuk Hang — in early 2013, and that Grade A tower should be ready this year. “Each floor was sold at $100 million according to market information. And smaller office units at One Island South in Wong Chuk Hang sold at $10,000 per square foot in 2012,” Ho points out. Lastly, the Wah Kwai shopping mall was sold in May, which earned itself a record-high appraisal.

Buying an industrial space and moving in is still unwise (as well as illegal), and for now, residential options in the Aberdeen area are few and far between. Public housing estates are the biggest single option, though the private Jadewater, Larvotto and Marinella — the area’s most prominent private developments — are offering flats at rental rates ranging between $17,000 and $150,000, with sales prices to match; $60 million luxury price tags do exist. The single biggest drawback to Aberdeen is its lack of residentially friendly amenities not clustered in single blocks. Dining and leisure options are limited, and it’s usually a long walk to the nearest 7-Eleven. Will the office towers and revitalised industrial buildings lead to the inevitable residential development, which stimulates those day-to-day services, and investment opportunities? Only time — and probably the MTR — will tell.