16 November 2012
Rents and prices are projected to increase 4-6% and 7-10%, respectively over the next twelve months
According to the Hong Kong Industrial Market Research & Forecast Report 3Q 2012 recently released by Colliers International, the local industrial market continued to see positive support on rental and price growth.
Although Hong Kong’s total value of re-exports during the three-month period between June and August 2012 declined by 2.4% year-on-year, the sustained solid retail sales in the local market remained a driving force for steady leasing demand in the warehouse sector. With the demand to outsource logistics functions by some major corporations, several third-party logistics companies are searching high-quality warehousing premises with sizes ranging from 30,000 to 50,000 sq ft in order to grab the business opportunities.
In view of limited availability of quality stock and sustained demand from third-party logistics companies, warehouse rents experienced outstanding growth amongst different types of industrial properties. The average rent of warehouse with ramp access increased by 4.8% quarter-on-quarter (QoQ) to HK$11.8 per sq ft per month in 3Q 2012, while that of warehouse with cargo lift access increased by 4.6% QoQ to HK$8.06 per sq ft per month.
In the factory sector, more landlords opted to convert the whole block of their buildings to other uses. As they plan to vacate their buildings for conversion work, the tenants in the buildings need to search other factory properties for relocation. This generated increasing leasing activity in the factory sector and thus supported rental growth. The average factory rent increased by 1.8% QoQ to HK$9.12 per sq ft per month in 3Q 2012.
Meanwhile, I-O buildings benefitted from the positive spill-over effect of sustained rental growth in decentralised office premises, and therefore recorded an increase of 1.8% QoQ in rents in 3Q 2012.
Positive trend was also observed in the sales market. “Sustained rental growth and low interest rates offered by banks continued to buoy industrial buying sentiment of end users, especially small-to-medium size companies, as well as investors in the industrial property market,” said Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International. “Price growth of different types of industrial properties, including factory, warehouse and I-O building, ranged from 6.5% to 8.0% QoQ in 3Q 2012.”
Furthermore, government policies such as permission for converting eligible industrial buildings into other uses and plans to convert whole blocks of eligible industrial buildings into “transitional accommodation” at nil waiver fees paint positive outlook for the industrial market. Therefore, the cash-rich owners kept on holding their industrial premises amid the current low interest rate environment. This resulted in a decrease in stock available for sale in 3Q 2012 and subsequently a contraction of transaction volume of both strata-title and en-bloc sales.
Looking ahead, more end-users are on a tight budget in view of the uncertain economic environment. Collies International projects Hong Kong’s industrial property rental growth to taper off to 4 - 6% over the next twelve months. Meanwhile, in view of increasing capital availability amid the third round of Quantitative Easing (QE3), the interest cost for acquiring industrial properties is anticipated to stay at a low level. Over the next twelve months, industrial property prices are projected to increase 7 – 10%.