15 May 2012

In 1Q 2012, Hong Kong’s industrial market was fueled by trading fundamentals showing signs of improvement. However, downward adjustment pressure is expected on industrial rents and prices in anticipation of uncertain exports performance in the coming quarters, according to Colliers International Industrial Market Report 1Q 2012.

The warehouse sub-sector continued to be supported by the strong local retail sales performance and saw steady demand from third-party logistics companies in 1Q 2012. In order to capture potential business growth due to the outsourcing activity of logistics functions by some major corporations, a group of third-party logistics companies have started searching for quality warehousing premises, particularly those with ramp access and size ranging from 50,000 to 100,000 sq ft.

Strong demand for quality warehouse can be demonstrated by the full occupancy of Interlink, a new logistics warehouse development in Tsing Yi that was opened in March 2012. As some tenants of Interlink will relocate their operations to this new premises, portions of the existing warehouse they are using will be released back to the marketplace.

“Amidst the current high occupancy level in the prime quality warehouse premises, some logistics operators have pre-committed to the warehouse spaces that have yet to be vacated by tenants who will move to Interlink,” said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International. “There is a huge lack of availability for warehouses with ramp access and size of 50,000 sq ft or above for lease.”

In the factory sub-sector, more landlords are now considering  to convert their industrial buildings for other uses. As they plan to vacate their buildings for en-bloc conversion works, the tenants in those buildings are looking for other factory premises for relocation, which served as another driving force for the industrial leasing activity in 1Q 2012.

Due to the sustained demand mentioned above, the average rent of ramp access warehouse registered the strongest growth in 1Q 2012 amongst different types of industrial properties, up 4.7% quarter-on-quarter (QoQ) as of the end of February 2012. Meanwhile, the average rents of factory, cargo lift access warehouse and I-O building increased by 1.5%, 4.3% and 1.5% QoQ, respectively, between November 2011 and February 2012.

On the sales front, vendors continued to enjoy low interest cost to hold their industrial premises, as well as stable rental income due to the sustained occupational demand from tenants. As a result, most of the vendors remained firm on their asking prices. These explained the softening of transaction volume but growth in total transaction value and price of industrial properties.

Between November 2011 and February 2012, the total number of strata-title transactions edged down 2.7% QoQ to 976, while the total value of strata-title transactions surged 19.2% to HK$4,888 million. Meanwhile, the average price growth of different types of industrial property ranges from 1.5% to 4.7% QoQ.

Looking ahead, however, both industrial property rents and prices are anticipated to see downward adjustment pressure. Due to uncertain economic performance in the coming quarters, more end-users are on a tighter budget for their business accommodation costs. Industrial rents are projected to drop 4% over the next twelve months. Meanwhile, industrial property prices are expected to decline 6% and yield to increase in anticipation of increasing interest rate.

Indonesia