Swire House is to be demolished and replaced with a $2.3 billion state-of-the-art office tower, Hongkong Land announced yesterday.

Work on the building, provisionally known as 11 Chater Road, will commence in October next year and should be completed in 2003.

Designed by architects Kohn Pedersen Fox, it will have 30 floors of offices above a three-level retail podium and a three-level basement.

Hongkong Land, part of the Jardine group, said the state of the property market and the planned departure of major Swire House tenant Cathay Pacific Airways meant it was time to redevelop.

Cathay, a member of the Swire group, plans to move to the new airport at Chek Lap Kok next year.

Hongkong Land owns about 40 per cent of the office space in Central, including Swire House, Jardine House, Exchange Square, the Princes Building, and the Hong Kong Club Building.

Group managing director Percy Weatherall said: "The time is right for Hongkong Land to maximise the value of its oldest property in Hong Kong.

"When completed, 11 Chater Road will deliver the opportunity for improved office rents compared with the current property."

He said the building had been designed specifically to cater for multinational banking and financial tenants.

"We wouldn't be doing this unless we felt confident about Hong Kong in general and the financial services industry in particular," he said. "This building is very much aimed at that market."

Mr Weatherall said the new building would not clash with the rush of major property projects connected with the airport railway as most of the supply was due for completion before 11 Chater Road was finished.

The redevelopment will be costly for Hongkong Land as apart from the expense of construction, it will lose five years of rental income.

The 35-year-old Swire House last year provided the company with $301

million, or about 10 per cent of its total rental income, analysts said.

In embarking on the redevelopment, Hongkong Land has answered claims that its portfolio is losing its competitive edge.

Analysts have said that only one of the company's existing buildings, Exchange Square Three, is able to meet the exacting demands of modern financial tenants.

The company has become the focus of attention since Li Ka-shing's Cheung Kong group disclosed in August it had taken three per cent stakes in Hongkong Land and Jardine Matheson.

The move fuelled speculation Mr Li was hoping to force Hongkong Land to relinquish some of its key office sites.

Hongkong Land said the announcement of the redevelopment was made a year before construction began to give existing tenants time to relocate.

Besides Cathay Pacific, the building houses a number of other fellow Swire group companies including Swire Pacific and Swire Industries.

The Swire Group, gained naming rights for the building in the 1970s, prior to which it was called Union House.

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