Hong Kong’s West Kowloon Cultural District Authority searches for money to avert financial crisis as endowment set to run out in 2025
- Lengthy contracts with developers under build-operate-transfer framework and income-sharing model at arts hub in spotlight
- CEO of West Kowloon Cultural District Authority Betty Fung says government-approved business model poses ‘a big challenge’
The West Kowloon Cultural District’s managing authority has put the Hong Kong art hub’s business model under review to maximise income and avert a financial crisis, a top official has told the Post.
Betty Fung Ching Suk-yee, CEO of the West Kowloon Cultural District Authority, revealed the body was rethinking the commercial components of two zones, called 2A and 2B, that were yet to be tendered.
She said the authority might not follow the build-operate-transfer and income-sharing model that another zone in the art hub, labelled 3B, adopted when it was tendered late last year.
“The model that the government approved in 2016, called the enhanced financial arrangement, poses a big challenge to us,” Fung said in an interview on Monday, noting developments under the arrangement would be primarily offices.
She highlighted the high office vacancy rate in recent years as the pandemic made remote work commonplace.
“Certainly, using the same model doesn’t work, right?” she said. “I’m looking at what is permissible in the original development plan,” she added, referring to the right granted by the government in 2016 to build hotels, offices, and residential areas.
When the authority was formed in 2008, it was granted a one-off endowment of HK$21.6 billion (US$3 billion) by the government for the whole precinct’s development, which Fung said was now enough to last until March 2025.
The commercial components in zone 3B, an area of 65,000 square metres (699,660 sq ft), were awarded to Sun Hung Kai Properties for an estimated HK$10.5 billion in November last year for an operation period of 47 years, which includes design and construction.
The operation period was extended by 13 years as a sweetener after the tender attracted no interest in February last year amid a weak market.
Sun Hung Kai will hand over ownership of the development to the authority in 2070 under the build-operate-transfer model. Three grade-A office towers there are expected to be completed in 2026.
Vincent Cheung, managing director of Vincorn Consulting and Appraisal, said the estimated rental revenue could be more than HK$13 billion annually, referencing rents of the office building directly opposite the arts hub, the International Commerce Centre.
But Fung said the estimate would only amount to a small cash injection for the arts hub. She is searching for sustainable income before 2070 when the authority gains 100 per cent of the development’s earnings. The split of the rental income between the developer and the authority has not been publicised.
“But what about 2025 to 2070? That is a long time. We have to think about how to come up with financial resources to support the district,” Fung told the Post.
She said even if residential units were built, they would not be a panacea for all of the hub’s financial ills because of the 20 per cent, or 172,000 square metres, cap on residential uses in the total gross floor area of the cultural district.
“I hope the government will be flexible in looking at what we are going to develop here,” she said.
In reply to the Post’s inquiry, the Culture, Sports, and Tourism Bureau noted that the arts precinct operated on a self-financing basis and the government would continue to support the authority’s “proactive key revenue generation strategy leveraging sponsorships, venue hire and the commercial development projects”.
