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Improved sentiment towards industrial assets brings institutional capital back to market

HONG KONG, 4 March 2021Leading diversified professional services and investment management firm Colliers Hong Kong SAR (NASDAQ and TSX: CIGI) has today released its latest Colliers Flash, ‘Rising investment demand in industrial assets’. The report finds that property investment market sentiment for industrial assets has improved, and institutional investors have become more active in looking for industrial assets since the start of 2021.

The COVID-19 pandemic and mounting economic uncertainty slowed transactions in Hong Kong’s industrial sector in 2020. Quarterly transaction volumes for industrial properties bottomed out in Q2 2020 at HK$115 million (US$14.7 million). However, transactions have started to pick up since the start of the year after the removal of the Double Stamp Duty in November last year. Sales volume in January and February was at HK$1.9 billion (US$245 million), surpassing the previous three quarterly figures.

Rosanna Tang, Head of Research, Hong Kong & Greater Bay Area, commented saying: “Hong Kong’s industrial sector was relatively resilient in 2020; we expect this sector will continue to attract investment in 2021. The strong rebound in export and import growth will stimulate demand for industrial space, strengthening rental rates and price levels for industrial assets. In addition, the removal of Double Stamp Duty in November last year has lowered transaction costs, which should provide some positive spin to the investment market and enable sellers to be more negotiable in asking price.”

“The sector has a positive long-term outlook, with the pandemic triggering a boost in demand for e-commerce, cold storage and logistics facilities. The development of 5G network and big data has also strengthened the need for industrial space. All these factors support the investment potential industrial assets can offer,” added Tang.

Return of institutional capital to the market

Institutional investors and real estate funds have become very active in the industrial sector. There has been HK$1.9 billion transacted in January and February this year, which have all been from institutional investors. In January, Kailong acquired Hang Fat Industrial Building in Lai Chi Kok, which will likely be redeveloped into a new industrial office building. Later in February, Goodman bought the ground floor to the fourth floor of Seapower Industrial Centre in Kwun Tong with cold storage facilities for HK$570 million (US$73.5 million). Also, in the same month, SilkRoad purchased Smile Centre in Fanling, which is currently leased for logistics use.

Stanley Wong, Senior Executive Director, Capital Markets & Investment Services, said: “Looking into 2021, we believe institutional capital and funds will become very active given some market uncertainties have begun to ease and the pent-up acquisition requirements have piled up over the last 18 months.”

“Compared to the retail and office sectors, industrial properties have demonstrated a high level of resilience and stability in terms of rents and capital values. In addition, the industrial Revitalisation Scheme 2.0 also presented investors with redevelopment opportunities, and some investors are eyeing the relaxed plot ratio restrictions to improve the return on their investments with higher floor area ratios,” added Wong.

Cold storage, logistics facilities and data centres remain attractive investment assets

The COVID-19 pandemic has increased investment appetite for cold storage, logistics facilities and data centres. It is also supported by other long-term macro drivers including the growing 5G network, cloud computing, e-commerce, and F&B demand. Investors are increasingly interested to explore industrial subsectors for long-term income streams and their redevelopment potential.

Thomas Chak, Executive Director, Capital Markets & Investment Services, said: “Cold storage assets are showing positive prospects with higher rents and stable yields when compared to traditional industrial buildings. Investors interested in this subsector should pay attention to areas like Kwai Chung and Shatin, where most enbloc licensed cold stores are located and therefore resenting more sale-and-leaseback opportunities.”

“For logistics facilities, e-commerce growth will likely strengthen the ongoing demand for industrial space, which suggests capital growth for this subsector from 2022 onwards once the market starts to recover from its current correctional phase. With the growth prospects of data centres, investors with high levels of capital should partner with experienced operators to bid for data centre development sites,” added Chak.

Click here to download the full report to read more about the prospects of the industrial sector.

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Thomas Chak

Executive Director

Capital Markets & Investment Services

Hong Kong

AREA OF EXPERTISE
Being an award-winning industry specialist, Thomas is highly regarded amongst his peers and clients with over 18 years’ property investment experience. The key client focus of Capital Markets remains institutional clients, local investors and developers, family offices and private high net worth individuals as well as PRC inbound capital. 

PROFESSIONAL ACCOMPLISHMENTS

Thomas develops and fosters partnership and consultancy based approaches to clients, resulting in improved profitability through high client retention rates and improved business profile. 

BUSINESS AND EDUCATIONAL BACKGROUND

Thomas has joined Colliers as Executive Director of Capital Markets in July 2019. In a way, this is a homecoming for Thomas as he was with Colliers’ Capital Markets team between 2006 and 2008.  Prior to joining back Colliers, he was with Knight Frank as Senior Director of Capital Markets, where he completed transactions of over HK$8 billion.   

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Stanley Wong

Senior Executive Director

Capital Markets & Investment Services

Hong Kong

Stanley is an industry-leading real estate professional with over 20 years’ experience working in Hong Kong’s property investment market. During this time, Stanley worked as an Executive Director and the former Head of Capital Markets for a competitor from 2012 to 2020 where he handled over HK$20 billion in transaction value

Stanley has a bachelor’s degree in Surveying and an MBA from the University of Hong Kong. Since completing his educational studies, Stanley has continued his professional development to become a member of the Hong Kong Institute of Surveyors and RICS.

Stanley’s transactional background and core skill set includes handling tenders and auctions for major assets such as retail podiums, enbloc buildings, development sites, major shopping centres, grade A offices and luxury residential. He also has experience on property acquisitions and disposal for major developers, investors and end-users in Hong Hong, as well as overseas institutional investors.

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Rosanna Tang

Head of Research, Hong Kong & Greater Bay Area

Research

Hong Kong

Rosanna Tang leads the research team in Hong Kong and South China in Colliers. Driving different research papers and client-orientated initiatives, Rosanna has a deep understanding of all property sectors, research products, and client requirements. Rosanna is also one of the spokespersons in the company, and she frequently speaks in different industry events and media interviews. 
 

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