Notable improvements in leasing volume

• While new leases remained constrained, the average deal size increased notably compared to the previous quarter.
• Demand was primarily driven by domestic consumption, with only sporadic activity from the trade sector.

Prime warehouse vacancy saw its first decline since 2024

• Overall prime warehouse vacancy declined from 10.5% in Q1 2026 to 9.5% in Q2 2026, returning to a single-digit vacancy rate on the back of the softening and more affordable rents.
• There was no completion in Q2 2026.

Investment sentiment weakened in Q2 2026, compared to Q1 2026

• Mainland Chinese buyers remained active in the industrial investment market, with an enbloc transaction recorded in Q2 2026.
• Similar to Kodak House transacted in the previous quarter, the acquired enbloc asset, KLN Investment Building in Mongkok, was a revitalised industrial building permitted for commercial use, with G–4/F designated as a retail podium and 5–12/F as office space.

Outlook: Softer rents are likely to drive some expansion

• The semiconductor sector will continue to underpin space expansion, driven by the rapid growth of the AI industry. Meanwhile, some domestic retailers may shift into prime warehouse space, capitalising on softer rents amid early signs of retail stabilisation.
• Prime warehouse rents are projected to decline by 0-5% in 2026, after correcting 2.7% in H1 2026.