Financial vertigo: Building too high?


Hong Kong's Two IFC will be the third-tallest office building in the world when finished in 2003

From Andrew Brown
CNN Correspondent

HONG KONG, China (CNN) -- At 88 stories and over 400 meters tall, Hong Kong's Two International Finance Center (IFC) is big.

It will be the third tallest office building in the world upon completion in 2003 and can boast a dazzling array of statistics.

There are 38,000 tons of structural steel in the building's framework with 11,000 reflective panels covering the outside to protect the 15,000 people that will work, and shop, inside a massive complex that also includes a mall and railway station.

To move them, Otis, the world's biggest elevator company, is installing a fleet of 65 lifts including a special, "executive" elevator that goes right from the top to the bottom.

It's one of the longest elevators on Earth.

But as the developers are getting ready to lease the property, they're finding that it will take more than the latest technology to attract the right tenants.

'Sweet spot'

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CNN's Andrew Brown reports on a gigantic skyscraper rising in Hong Kong that will accommodate 15,000 people and the costs rising with it.

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After the project was conceived in the 1990s, Hong Kong's property market collapsed, forcing down rent and increasing competition for tenants.

Developers of the building split up, appointing their own agents to lease different sections.

The Mass Transit Railway Corporation's sector of the building consists of 18 floors in the middle of the structure, leading the company's agents, CB Richard Ellis, to dub it the "sweet spot" of the building.

"If you're too low down, there's the potential of having another high-rise building in front of you, if you're too high up, you have the potential of being in the clouds," said Nigel Smith of Richard Ellis.

"At the end of the day, these central 18 floors we think are probably going to have the best view."

Short-term outlook grim

Analysts tell CNN that in the current climate the short-term outlook for developers and agents still looks grim.

Some experts forecast tenants will only be paying roughly half of what they pay for office space in central London or Manhattan.

"In terms of effective rent, we're probably looking at $3 a square foot a month, so about $30 a square meter a month," said property analyst Nick Brooke.

That's not what the developers want to hear, but recent events may mean that Two IFC stands alone in dominating Hong Kong's skyline for years to come.

Effect of September 11th


The future of skyscrapers has been shrouded by the events of 9/11. Two IFC is set to stand alone in dominating Hong Kong's skyline for many years to come

The September 11 terrorist attacks in the United States pushed up the cost of insuring new skyscrapers -- and as the cost of funding rises, observers believe that some future projects will be delayed or cancelled.

Brooke added "Most of the banks are saying, well, 40 to 50 stories we can live with, but if you start talking 100 stories -- which attracts a lot of attention -- we get somewhat nervous."

Hong Kong property developers have ample funding at their disposal, and thus rely less on commercial loans than developers in other parts of the world.

Two IFC was supposed to have an even bigger twin on the other side of Hong Kong Harbor, dubbed Union Square, which was to be funded by the developers involved.

But after revising the building's height down from 580 meters to 480, the project hit delays and now won't be completed until 2007 at the earliest.

Developers may still be dreaming of breaking beyond 100 floors in Hong Kong -- but they must overcome their financial vertigo first.