APPD Market Report Article

Hong Kong

February 28, 2022

4.7%

HKD 12.6

Rents
Rising

Hong Kong’s export performance remains supportive to the sector

  • External trade further recovered in 4Q21 despite supply bottlenecks in many places around the world. Aggregate trade value registered a steady YTD increase of 25.7% (Jan – Nov 2021), with total imports and exports rising by 24.9% and 26.5%, respectively.
  • Benefiting from visible trade growth with major trading partners, especially Mainland China, more transactions and enquiries arose from logistics companies during the quarter.

Vacancy continues to drop further

  • No new supply was completed during the quarter, while the much-anticipated Goodman Westlink in Tuen Mun is expected to complete in 1H22.
  • The overall vacancy stayed at a healthy level, and dropped further to approximately 0.84 million sq ft (1.5%) as at end-4Q21. Total net absorption for 2021 reached around 0.8 million sq ft, a level not seen in the past ten years.

Rents and capital values continue to grow

  • During the quarter, the positive market outlook and competitive landscape for quality warehouse space have lifted confidence among landlords. In addition, a lower vacancy rate coupled with a shortened rent-free period drove net effective rents to rise by 1.7% q-o-q, to HKD 12.6 per sq ft per month.
  • In 4Q21, investors remained keen towards the industrial assets, although investment momentum slowed down. Notably, Link REIT acquired an institutional grade car park/car service centre and a godown building for a total consideration of HKD 5.82 billion from Jardine Matheson. Both properties came with 5-year sale and leaseback arrangements to Zung Fu Company.

Outlook: Market strength is expected to continue into 2022

  • We expect the export momentum to sustain in 2022 amid global economic recovery. Domestic demand to underpin positive rental forecast to rise 0-5% in 2022, while capital values nudging on an upward trajectory, despite possible headwind from another wave of the pandemic.
  • We also expect some compressions in market yields in 2022 given strong capital inflows. Institutional investors are likely to stay active and keen on re-purposing opportunities for alternate uses.

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

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