The HK government claims to be exporting its Cyberport "know how" to New Zealand. All citizens should know how interventionist this office, hotel, retail and cinema project was. It should now be sold off, perhaps as a REIT. Meanwhile, Government should rethink the Murray Building plan. Sell it to the highest bid, allow redevelopment, and don't restrict it to hotel use, which may be sub-optimal. Another Government-owned hotel would represent further intervention.

Cyber-Export
8 November 2009

Browsing through the Government press releases last week, we came across one of the more entertaining pieces of propaganda titled:

"Cyberport signs first deal to export know-how to help set up New Zealand's Digital Innovation Hub"

Apparently Hong Kong Cyberport Management Co Ltd (Cyberport), the Government-owned company which owns a 5-star hotel, shopping mall, cinema and offices in Pokfulam, has signed a "Knowledge Sharing and Transfer Agreement" with the Wellington City Council and New Zealand Institute of Screen Innovation Ltd. The city is building a NZ$20m (US$14.4m) "Digital Innovation Hub" which appears to be mainly a recording studio at which the NZ Symphony Orchestra will be based and which others may use.

Nicholas Yang, Cyberport's CEO, said in the statement:

"this is the first formal agreement Cyberport has signed to export its intellectual property and expertise to another country. This agreement is not only a big step forward for Cyberport towards our closer collaboration with international counterparts, but also confirms the international recognition and acceptance of Cyberport's business model"

What know-how?

The announcement conspicuously omits to say what this "intellectual property" we are exporting is worth, in the form of a price to be paid for it. If it isn't zero, they're not saying. Hong Kong taxpayers must be intrigued to know what 26 hectares of prime sea-front land has bought them, apart from a collection of retail, hotel and office properties and a share of profits from the luxury residential project.

For sure, the Cyberport has a Digital Media Centre, but this, together with the iResource Centre, generated revenues of just HK$5.5m (US$703k) in the year to 31-Mar-08, far less even than the depreciation on its assets. New Zealand should not be looking to us for inspiration in this area. Their project is nothing like the Cyberport and only a small fraction of its size. Incidentally, the full accounts of the Cyberport remain an official secret. We are just quoting from extracts contained in the latest briefing paper to LegCo on 9-Mar-09.

As regards know-how, what New Zealanders need to know is how Hong Kong's Government intervened in the commercial, retail and residential property markets by creating this project, awarded without tender to the son of Hong Kong's richest person. Apart from low rents, the resulting property offers nothing which is not available in the private sector, but claims to be a "unique Creative Digital Community" (with capital letters).

A low-rent neighbourhood

According to a government response to Legco, Cyberport office rents as of January 2009 averaged HK$12.77 per sq ft per month. Round at the "Swireberport" in Quarry Bay, you would be paying around $20-30 psf for similar "grade A" offices. No surprise then that Microsoft relocated its entire HK operation from Quarry Bay to the Cyberport where it occupies "almost 80,000" sq ft, or that Federal Express left Two Pacific Place. Just how much of this space do you think is used for high-tech software development work, not done in the overseas headquarters of these firms, and how much is for sales, marketing and services? Other tenants include advertising firms DDB and PHD (both owned by Omnicom Group), magazine publisher Hachette Filipacchi Hong Kong Ltd, patent attorney/law firm Marks & Clerk/Anthony Evans & Co and fund manager Excelsior Capital Asia (HK) Ltd. Even the long-awaited Hong Kong Mercantile Exchange Ltd can be found there.

To reduce its interventionist footprint and realise value for the public purse, the Government should exit this project by selling off the property, perhaps as a Real Estate Investment Trust. According to the Government paper, at 31-Mar-08 Cyberport had an independent valuation of HK$5.98bn. Under private-sector ownership, the Cyber-REIT would raise office rents to commercial levels and remove the subsidy that tenants in the free market do not enjoy. With about 1.02m sq ft of offices, a 170-room 5-star hotel and a 290,000 sq ft shopping mall, it would probably fetch a lot more than the valuation the Government quotes.

Murray mint

Incidentally, while we are on the subject of Government-owned hotels, last month's Policy Address (or more aptly, the Property Address, featuring Boy Scout Donald Tsang), announced that tenders would be invited to convert the 1969-vintage Murray Building which stands between Garden Road and Cotton Tree Drive into a hotel. Currently it is Government offices which will be vacated when they move to the water-front Tamar Palace.

Apparently the Government has decided that a hotel will be the optimal use for the site. Surely they should let the market decide that, whether it is as a hotel, offices or maybe even residential. Put it up for auction on those broad terms and we will find out and gain maximum value for the people of HK. It is stretching credulity to say that this building has heritage status - it is an ugly white block with sides like a waffle, and if the land is worth more without it then let it go. Physically it has already lasted longer than the Furama and Hilton Hotels did and twice as long as the Ritz Carlton did. An imaginative developer could probably give us something much nicer to look at.

The Government has been silent on whether it intends to retain ownership of the property after conversion - but why should it? This would just represent Government intervention in the hotel sector.

© Webb-site.com, 2009

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