The average rental growth of warehouses is projected to slow to 4% in the next 12 months
24 May 2013
In 2013, Hong Kong’s industrial property market faced uncertainties due to the slowdown in re-exports. Following weakening performance in late 2012, the three-month moving average of re-export volume decreased from 7.8% year-on-year (YoY) in 4Q 2012 to 5.1% YoY in 1Q 2013, according to the government’s statistics.
“Despite the challenging external environment clouding the re-exports, the continued local price inflation and increasing tourist arrivals sustained retail sales growth in 1Q 2013, which consequently supported the demand for the local logistics distribution,” says Simon Lo, Executive Director of Research & Advisory, Asia at Colliers International.
In addition to the solid demand, a lack of stock for leasing underpinned the continued rental growth of quality warehouses in Hong Kong. In 1Q 2013, warehousing rents increased by an average of 5% quarter-on-quarter (QoQ), a similar growth rate to that of the past two years.
Lo points that the prevailing undersupply situation is exacerbated by the fact that virtually no new warehousing stock has been added during the past 10 years. Although the development at the two logistics sites in Tsing Yi that were sold to two individual developers in 2010 and 2012 will be the upcoming new supplies in the market, their developers are likely to hold most of the spaces for their own use. In other words, the completion of these two developments will only provide limited stock available for lease in the open market.
Looking forward, the local warehousing rents continue to benefit from the tight supply environment and the expected growth of re-exports and retail sales. However, in anticipation of a slowdown in both retail sales and re-exports volume, warehousing rental growth is projected to drop to 4% over the next 12 months.
On the investment front, the government statistics showed that the average investment yield of industrial properties fell further to an all-time-low of 2.7% in February 2013.
Lo explains the record low yield was due to an increase in the number of players and investment capital in the industrial sector. Since the government introduced a series of cooling measures in October 2012 to curb the speculative activities by short-term traders and non-local purchasers in the residential market, the flow of investment into the industrial sector was boosted by the entry of a group of non-traditional buyers from the residential sector in 1Q 2013.
However, the new double stamp duty measure, which was introduced by the government in February 2013 in both residential and non-residential sectors, has increased the cost of transactions for buying properties including those in the industrial sector. As a result, the volume of industrial property sales transactions is set to fall in the coming quarters.