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Expert Insights | Industrial sector shines brightest for real estate stakeholders

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They say real estate is all about location, location, location. If you add logistics, logistics, logistics, you will understand why industrial assets are top performers in Hong Kong.

 
This is in contrast to investor hesitancy about the office and retail sectors because of the uncertainty about when restriction-free travel between Hong Kong SAR, mainland China and the rest of the world will resume, some real-estate experts have moved ahead with substantial transactions in the race for prime industrial space. 

Despite some dips along the way, including a major one for obvious reasons between 2020 and 2021, the rental and sale prices of warehouses and flatted factories have continued their steady rise from their base in the fourth quarter of 2020.

Solid leasing demand, particularly from third-party logistics players (3PLs), continues to support warehouse rents. This, coupled with tight vacancy, saw rents increase by 1.1% in the second quarter of this year to HK$14.7 per sq. ft. 

ESR, Asia Pacific’s largest real asset manager and the third largest listed real-estate investment manager globally, has just done a deal in this part of the market in Hong Kong, spending nearly HK$5.2 billion (HK$668.7 million) on a successful bid for a site in Kwai Chung in the New Territories. 

The plans outline a seven-storey state-of-the-art logistics facility. This will directly provide for the growing demand for cold storage in Hong Kong, a bi-product of the pandemic and changing consumer trends. Kwai Chung is an established and strategic geographic location that’s accessible by a strong road networks to Hong Kong’s CBD, international airport, and the mainland China border which connects Hong Kong with the rest of the Greater Bay Area (GBA). 


"This transaction is a perfect example of why asset managers want industrial real estate opportunities – it is where the demand is."


This transaction is a perfect example of why asset managers want industrial real estate opportunities – it is where the demand is.  This is supported by the vacancy rates for Hong Kong’s logistics at the moment, the classic demand vs limited-supply in the coming years is driving price for both investment and leasing. It should also be noted that it is not just limited supply, but it is a lack of logistics space that is equipped to the high specifications of e-commerce operators, this compounds the decision to why it is a Kwai Chung move will pay off. 

A month before the Kwai Chung deal, the same company and CLP, the Hong Kong power utility, signed a memorandum of understanding to develop sustainable data centres and logistics centres in Hong Kong and the GBA. 

Data centre take-off

Mapletree Logistics Trust, another investor with substantial interests in the Asia-Pacific region, has also put its money into Hong Kong’s industrial real-estate market. It’s reported they have acquired a logistics hub in Tsing Yi for reasons that explain why many of its peers favour the industrial market in Hong Kong as well: it was a high quality property in a prime logistics location; the deal increased its exposure to Hong Kong, an attractive logistics market; it had a strong tenant base and an attractive valuation. 

The Singapore real-estate investment trust announced in February 2021 that it was developing its first data centre project in Hong Kong after winning a HK$813 million tender for a site in Fanling. Mapletree said the site was near two interconnection points, which would allow the development to offer strong network connectivity to major cities in mainland China for speedy and reliable cross-border communications.

On the investment front, we expect to see more deals with landlords or institutional investors partnering with 3PLs, cold storage, self-storage, or data centre operators by arranging long leases to lock-in long-term revenue . Industrial property is expected to continue to be the most popular asset type for institutional investors given its resilient performance. 


"On the investment front, we expect to see more deals with landlords or institutional investors partnering with 3PLs, cold storage, self-storage, or data centre operators by arranging long leases to lock-in long-term revenue."


Leasing enquiries will pick up in the second half of 2022, supporting a forecast of annual, year-on-year growth in warehouse rents of 3.5% in 2022.

Warehouses cost 0.1% more per sq. ft. quarter-on-quarter in Q2 at HK$4,840. If they show annual growth of 5%, the per sq. ft. cost will go up to HK$5,050. Warehouse space is predicted to increase by 1.6 million sq. ft. this year, a clear outline of the strong, sustainable growth for this thriving sector. 

New partnerships

All of these activities suggest landlords or investors interested stable rental income and higher yields from their real estate assets should consider partnerships with operators from fast-growing sectors like logistics, cold storage, self-storage, or data centres. 


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Bill Chan

Senior Director | Head of Industrial Services

Industrial Services

Hong Kong

Bill is a Senior Director in the Industrial Services business in Hong Kong. He is an industry-leading real estate expert with leasing and investment expertise spanning 28 years in industrial brokerage and manufacturing. He has an extensive track record of major leasing, disposition, and acquisition deals across a range of assets in multiple global markets.

Not only that, he has specific experience with cold and self-storage assets, and advised GDS Holdings Ltd on setting up their first data centre space in Hong Kong, which complements the focus areas of multiple Colliers’ business lines.

He recently re-joined Colliers after leaving in 2019 to work in Canada for DHF Capitals, a real estate development and property management company, and he now looks forward to accelerating the success of our clients and people.

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