Concrete Analysis | Will new supply in West Kowloon dampen Hong Kong’s record office rents?

In his latest budget, Hong Kong’s Financial Secretary Paul Chan Man-po has designated the land plot above the West Kowloon Express Rail Link (XRL) terminal to be up for sale. The site will generate a substantial amount of grade A office space that is more than double the existing stock in the area.

With the opening of the terminal this year, this upsurge of space is set to have a huge impact on the office market in West Kowloon in the short term, which will spread to the entire Tsim Sha Tsui area and other business districts in Hong Kong in the long term.

The topside development project of the XRL will be huge, offering a total gross floor area (GFA) of around 3.16 million square feet. About 90 per cent of that, or around 2.8 million sq ft, will be office space. This, together with the existing 2.4 million sq ft of the International Commerce Centre nearby, will instantly transform West Kowloon from a one-building district to a new business hub that is one subway stop away from the traditional business district in Central.

From a different perspective, this combined 5.2 million sq ft will be three times the GFA of One Island East tower in Quarry Bay. And if we add on the 1.79 million sq ft office space at the Olympic Station one stop away, this new business area is already on par with the office cluster around Taikoo Place on the eastern side of the Hong Kong Island.

What this means is that we will have a new office hub, an alternative decentralised area, just across the narrow waterway from Central, geographically competing with the likes of Island East.

Island East offers a rental advantage over West Kowloon with its prime rents some HK$100 (US$12.74) lower than Central’s, while ICC currently enjoys just about HK$40 discount. The large new supply, however, will narrow that difference.