Hysan to redevelop Causeway Bay centre
17 January 2006
South China Morning Post
Hysan Development plans to spend $1.2 billion redeveloping its 25-year-old Hennessy Centre in Causeway Bay to cash in on the strong demand for prime retail space in one of the world's most expensive districts for shop rentals.
The 45-storey office and retail complex on Hennessy Road will be torn down in the fourth quarter and redeveloped with a heavy retail exposure in late 2009.
Hysan, the biggest landlord in Causeway Bay, said the new building would offer a gross floor area of more than 700,000 square feet, about the same as now.
However, the retail space would "substantially increase", compared with the under-utilised design of 150,000 sqft lettable space at present. No projected revenue growth from the redevelopment was available.
"It is a very prime location," BOC International analyst Ken Yeung Hoi-chuen said. "The redevelopment will enhance Hysan's net asset value, although the company will have to sacrifice some rental revenue in the next three years."
Hysan's earnings are expected to see 38.66 per cent growth to $844.81 million for last year but drop 11.4 per cent to $748.54 million this year, according to Thomson Financial's mean estimate of 12 brokers.
Some analysts estimated the company's rental revenue would fall about $200 million a year from 2007 to 2009 because of the redevelopment project.
Hysan's management believed the project would boost the quality of its four million sqft investment property portfolio and change Causeway Bay's skyline.
"The project will further rejuvenate the surrounding areas and the Causeway Bay district, thereby continuing to reinforce its position as a shoppers' paradise and prime commercial district in Hong Kong," managing director Michael Lee Tze-hau said.
Retail rents in Causeway Bay, ranked the second most expensive in the world by Cushman & Wakefield, jumped 25 per cent to $352 per square foot last year, according to Colliers International.
Built in 1981, Hennessy Centre has a gross floor area of 719,642 sqft. The building, which has seven levels of retail space, houses Japanese department store Mitsukoshi. The store will be closed in September when its lease expires.
Hysan, which originally opted for renovating the building, would not comment on how the redevelopment would affect the government's proposals to improve the shopping area of Causeway Bay, saying it was still in talks with the administration.
In 2004, the government asked Hysan to consider converting the five-level 263-space parking lot in Hennessy Centre into retail space to support its proposals to fully pedestrianise Kai Chiu Road, which runs behind the building.
Hysan was concerned that the move might entail expensive structural changes to the building.
The administration also proposed a 50-metre underground passage below Hennessy Road linking Hennessy Centre to the Sogo department store opposite.
Shares of Hysan closed down 0.25 per cent at $19.50 yesterday.