The Kowloon Bay commercial site result is the most eye-catching among the three tender results announced yesterday by the government, according to Knight Frank. The strong interest shown and the winning bid underlines developers' confidence and optimism on Hong Kong's office sector, in particular in Kowloon East.

Highlights for tender results:

• Swire Properties (1972.HK) outbid other developers to win a commercial site in Kowloon Bay for HK$2.64 billion, representing an accommodation value of about HK$4,753 per sq ft. Despite having unusual land lease provisions that prohibit strata sale and require the developer to build to high environmentally friendly standards, the sale price was at the higher end of market expectations

• Meanwhile, Wheelock (0020.HK) won the former government office Murray Building tender, for HK$4.4 billion, representing an accommodation value of about HK$13,535 per sq ft. The existing structure will be converted into a luxury hotel.

Paul Hart, Executive Director at Knight Frank, commented on the Kowloon Bay tender result, "The price tag is at the higher end of our expectations. In addition, the strong interest and tender result, given the restricted alienation provisions, show that developers are confident and optimistic in Hong Kong's office sector, in particular in Kowloon East."

"The mature nature of the office market on Hong Kong Island means market players are setting their sights across the harbour. Swire Properties’ participation in the Kowloon East market is a strong vote of confidence in Hong Kong’s office sector and reinforces Knight Frank's view that by 2020, Hong Kong will be facing a chronic shortage of Grade-A office accommodation."

Mr Hart added, “The non-strata alienation provision is a double edged sword. On one hand, it limits opportunities for traditional players to develop and sell to smaller owner-occupiers and investors. On the other hand, it creates large en-bloc opportunities for core investors."

"The green building requirements contained in the tender represent an acknowledgment by the government that real estate has a significant impact on our environment. It also plays nicely to the requirements of corporate occupiers who are demanding environmentally friendly offices."

Mr Hart concluded, "Given the success of this sale we expect to see these provisions included in the lease conditions of future Kowloon East office sales."

Commenting on the Murray Building hotel site tender result, Thomas Lam, Head of Research & Consultancy, Greater China at Knight Frank, says, "We believe the price tag is reasonable, given the difficulty of getting a hotel site in a prime location amid strong demand for hotel rooms."

"Hong Kong is facing a shortage of hotels, especially in Central where a number of high-end hotels have been demolished in the recent past 15. Existing five-star hotels are fully occupied during the peak season, while the average occupancy rate is about 70-80%, higher than the average occupancy rate of 70% in Macau and 60% on the mainland. A lack of new supply of five-star hotels is also expected in the next few years."