Hong Kong's Cyberport Development Draws Fire for Below-Market Rents
April 23, 2001
Tech Center
By GREN MANUEL and KIRSTI HASTINGS
Staff Reporters of THE WALL STREET JOURNAL
HONG KONG -- An offer of below-market rents at Hong Kong's Cyberport development has re-ignited accusations that the US$2 billion project amounts to little more than a government subsidy to high-tech companies.
It is a sensitive charge. The government project, an ambitious attempt to jump-start the city's technology sector, was awarded amid great controversy in 1999. It was designed to help create a high-tech center for Hong Kong, following models such as the Hsinchu Science Park in Taiwan. The aim was to create a community of local firms and multinationals at a park-like site on prime waterfront real estate about 10 kilometers (six miles) from the central business district on the west side of Hong Kong Island.
However, proponents of the project said that unlike many similar Asian developments, the Cyberport wouldn't offer explicit subsidies, which the Hong Kong authorities have always rejected as an intervention in the free market.
But on Friday the government seemed to reverse that stand, announcing that rents for the first phase, scheduled to open early in 2002, would be between 11 Hong Kong dollars and HK$13 (US$1.41 to US$1.67) per square foot, substantially below the US$1.50 to US$2 range given when the project was unveiled.
It is also far below rents in the Quarry Bay district of Hong Kong which, like Cyberport, is about a 30-minute commute from the city's Central district. The many information-technology firms there pay around HK$20 (US$2.56) per square foot -- in a high-rise environment with none of the ambiance planned for the Cyberport.
"There's an implicit subsidy there," said Robert Fong, property analyst at Salomon Smith Barney.
Other analysts echoed Mr. Fong's views, although some said exact valuation was difficult as no benchmark currently exists.
Even one of the project's supporters, Sin Chung-kai, who represents the information-technology sector in the Legislative Council, said he feared commercial landlords may object if tenants started moving to the Cyberport from other locations in the city.
Annie Tam, the government's deputy secretary for information technology and broadcasting, said consultants had recommended the rent as being in line with the Hong Kong market and similar facilities in the U.S. and Europe.
"We haven't changed anything in our vision at all," she said. "Some people say the rents are too high."
A committee of bureaucrats and senior management will set guidelines for who is eligible to rent in the Cyberport from local and international high-tech firms. Cisco Systems , Microsoft , Oracle , Yahoo! and many other big names have already signed letters of intent to become anchor tenants.
Pacific Century CyberWorks Ltd. was awarded, without tender, the deal to build the project in a move that sparked accusations of favoritism because its chairman, Richard Li, is the son of the city's most influential businessman, Li Ka-shing. PCCW will hand the office space amounting to 12 million square feet over to the government and will recoup its costs by selling some 2,700 flats to be built on the same site.
Write to Gren Manuel at gren.manuel@awsj.com1 and Kirsti Hastings at kirsti.hastings@dowjones.com2
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