Can Hong Kong's first smart city relieve pressure off of space-starved Central?

Citibank, AXA, JP Morgan and Nike are some of the big-ticket names that chose to settle in Kowloon.

Three years after the government announced its plans to develop Kowloon East into a second Central Business District (CBD), Hong Kong’s first smart city is finally taking shape, a report by JLL revealed.

Boasting high-tech features such as multi-purpose lampposts that analyse air quality, display information and even charge electric vehicles, the scheme aims to lure landlords and tenants away from the space-starved Central area and cement Hong Kong’s position as a tech-powered business hub.

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“By improving mobility, amenities and the built environment, Kowloon East will eventually be seen as preferred location to work, live and play,” Denis Ma, head of research for JLL Hong Kong, highlighted.

JLL also revealed that a number of pilot innovations are already underway in the once industrial district, which also housed the former Kai Tak airport, such as an app that provides seamless outdoor/indoor navigation augmented with a virtual reality (VR) platform, a smart crowd management system that automatically assesses pedestrian flows for crowd management, and public transport arrangements with real time parking and traffic updates.

Whilst the development of Kowloon East is still in its early stages, JLL noted that several corporations have already moved in.

“Citibank consolidated five of its offices in Hong Kong and shifted to its own building in Kowloon East that was purchased for $5.42b back in 2014, and now boasts the likes of JP Morgan, AXA, Nike and Leo Burnett as neighbours,” the firm pointed out, adding that the area’s lower rents and value for money have been a big initial draw.

On average, a tenant can save close to US$15m a year in rent taking up a 100,000 sqft unit in Kowloon East instead of Central, according to JLL data.

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However, intensive development in the area has contributed in pushing property values up, as the price of land and assets in Kowloon East is now significantly higher than when the smart city project was first announced.

“It was reported that local developer, Lai Sun Development, fended off 17 competitors to land a residential development site for $883m last month. This worked out to be $13,300 psf and 60% more than what Wheelock and Co paid for a nearby site in 2016,” the firm said.

Meanwhile, the smart city is not just focusing on big corporates, as it looks to urban planning and management to support small businesses. Where some development sites in Kowloon East used to include restrictions around stratification, a handful of sites sold in the past few months have dropped the clause to allow developers to sell strata-titled units to smaller business operators and investors, JLL added.

And due to the large concentration of industrial buildings, Kowloon East is set to be one of the primary beneficiaries of the industrial building revitalisation scheme reintroduced in 2018. Older industrial buildings that meet certain criteria can be converted to non-industrial use without the need to pay a waiver fee or lease.

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“With this, the government aims to provide a broader range of affordable office accommodation to the business community,” Ma explained, adding that this has attracted developers like Hanison Construction Holdings, which purchased an industrial building in Kowloon East for $489m in March.