Ritz-Carlton in line for offices facelift
10 April 2006
Hong Kong Standard
Lai Sun Development may redevelop the Ritz-Carlton as a hotel plus offices project to capitalize on surging office rentals in Central.
"We are studying the possible redevelopment of the Ritz-Carlton Hong Kong site," said chairman Peter Lam in the company's interim result statement Friday.
"Given the strong demand for prime office premises and the dearth of new supply in Central, prime office rentals in Central are likely to remain firm and could increase further," he added.
Lam cited the adjacent AIG Tower, which has achieved rents above HK$90 per square foot a month in tenancies signed up last year. Lai Sun has a 10 percent interest in the tower.
Lai Sun Development expects the current Ritz-Carlton site of about 15,000 square feet to provide not less than 225,000 sq ft of office space under current building regulations, which will not require paying any land premium or modifying the land lease with the government.
Ritz-Carlton Hong Kong, which is 65 percent owned by Lai Sun Development, has achieved an occupancy rate of 93 percent with rising room rates during the six months ending January 31, 2006.
Lai Sun swung back to a profit of HK$231 million for the six months ending 31 January 2006 from a loss of HK$1.17 billion in a year ago, thanks to the HK$178 million gain from revaluation of investment properties.
Rents for top-grade office space leaped 45 percent to the current average of HK$460 per sq ft per month from 2004, and very little new space is expected to come on to the market in the medium term.
As a result, rents for prime office space in the central business district are expected to jump a further 20 percent this year, according to real estate consultancy CB Richard Ellis.
The present average vacancy rate at such properties is at a rock-bottom 4.8 percent, said CB Richard Ellis.
Kenny Tang, associate director at Tung Tai Securities, said: "The site [of Ritz-Carlton] has great redevelopment value as the market estimates the supply of grade A office [space] in the near future will be scarce, and demand for grade A offices will climb due to the buoyant economy.
"The proposed office-hotel complex will be a very valuable asset that may be separately listed in the form of a REIT [Real Estate Investment Trust]. That will help boost Lai Sun's share price."
Lai Sun Development had once accumulated debts amounting to HK$10 billion after paying a record HK$6.8 billion for a 65 percent stake in the former Furama Hotel _ which was later developed into AIG Tower _ before the Asian financial crisis and the subsequent Hong Kong property market crash of 1997. But a turnaround in rentals has helped the company reverse its fortunes and its shares have so far surged almost 140 percent this year, closing at HK$0.385 Friday.
The Ritz-Carlton first signed a yearly management contract with Lai Sun to operate the Central property in 1993. It is up for renewal in the second half of the year.
Sources in the local property market do not expect the lease to be renewed this year.