Leasing velocity remains slow amid limited new demand

• Radiance Sea Hong Kong Ltd and Thai Kee Logistics Ltd have committed to leasing Cainiao Smart Gateway in Chek Lap Kok.
• Following the commitment made by Pinduoduo and Cainiao supply chain in Q4 2024, another major Chinese e-commerce player, JD Logistics, launched its fifth operation centre in Chai Wan with an area of over 10,000 sq ft in the quarter.

The overall vacancy increased from 7.9% in Q4 2024 to 8.9% in Q1 2025

• Negative net absorption expanded from around 3,200 sq ft in Q4 2024 to about 610,000 sq ft in Q1 2025.
• Transit Mail Centre in Chek Lap Kok (around 152,000 sq ft) received its occupation permit in December 2024. Meanwhile, The Wharf Holdings confirmed plans for a new logistics facility (around 5 million sq ft) in Kwai Chung, slated for completion in 2028.

Primary sales of modern industrial facilities dominate transaction volume

• Several primary modern industrial projects continued their market launches in Q1 2025, including Verde Heights (Kailong), Prowell Asia Centre (First Group) and Horizon Sea (Qi Feng Capital).
• Dr Kong, a prominent footwear retailer chain, acquired two floors in Verde Heights in Cheung Sha Wan for HKD 176.0 million (HKD 5,447 per sq ft), reportedly for self-occupation.

Outlook: Projected decline in rents and capital values remains

• Given the projected moderate growth in external trade and local consumption for 2025, the flagging leasing demand is expected to present challenges in absorbing the existing and forthcoming available space.
• Investor interest in modern industrial will likely be sustained, due to their relatively low capital requirements and premium specifications.