APPD Market Report Article

Hong Kong

May 31, 2022

5.3%

HKD 12.8

Rents
Rising

Growth in aggregate trade volume slowed down

  • The aggregate trade volume grew moderately compared with the previous quarters. The total external trade increased by 9.3% y-o-y (YTD-February), with total imports and exports climbing by 8.1% and 10.6% y-o-y, respectively. Demand from trade-dependent operators appeared to have slightly slowed entering into 2022.
  • The shift from offline shopping to online retail amid the tightening of social distancing measures bolstered the e-commerce sector and their demand for warehouse space, driving down the vacancy rate.

Completion delayed, vacancies edged down further

  • Originally slated for completion in 1Q22, the completion date of Goodman Westlink in Tuen Mun was delayed due to epidemic-related issues. There were no further updates on the timing of expected completion.
  • The vacancy rate edged down from 1.5% to 0.9% with an estimated availability of 520,000 sq ft as of end-1Q22.

Rents and capital values increase

  • Warehouse occupiers, notably the online retailers, were active in taking space in anticipation of robust demand. As marketable space shrank, landlords raised the effective rents with shortened rent-free periods. Nonetheless, the level of leasing activities slowed slightly as the fifth wave of the COVID-19 hit. Overall, effective rent grew by 1.5% q-o-q in 1Q22.
  • The investment momentum was sustained despite the COVID-19 outbreak. One notable en-bloc transaction was Telecom Digital’s purchase of Wider Industrial Building in Kwun Tong from Tang Shing Bor family for HKD 733 million for self-use and long-term investment purposes.

Outlook: Investment momentum expected to continue in 2022

  • The warehouse sector is expected to be supported by the low vacancy level and surging demand coming from online businesses as well as the need to store medical supplies – a COVID-19-induced demand. These are likely to more than offset the moderation in the external trade sector.
  • Market yield is expected to be slightly compressed. Investors with operating platforms are keen to seek assets suitable for re-purposing although potentially higher funding costs and the current wave of epidemic are causing some pauses.

Note: Hong Kong Logistics & Industrial refers to Hong Kong's industrial warehouse market.

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