Occupier demand focusing on renewals

• The stringent COVID-19 measures in China and the global economic contraction continued to drag on merchandise trade performance in 4Q22. Total external trade dropped by 17.0% y-o-y (Oct-Nov 2022), with imports and total exports falling by 16.3% and 17.7% respectively.
• Leasing demand was contributed mainly by domestic F&B operators, mostly from renewals. The limited new lettings suggested that most tenants remained conservative before moving on with leasing plans, due to uncertainty in the external environment. Carlsberg Brewery leased 119,468 sq ft at ATL Logistics – Centre B in Kwai Chung, while Swire Coca-Cola took 48,178 sq ft at Ever Gain Centre in Shatin.

New supply added in late-3Q22 drives vacancy up

• Goodman Westlink in Tuen Mun obtained its Occupation Permit in late-3Q22, adding about 1,496,000 sq ft to stock.
• The overall vacancy rate stayed at 1.8% in the quarter, without much space taken up. Net absorption in 4Q22 recorded -21,045 sq ft.

Rental and capital value growth moderate

• The worsening of external trade and the new addition to stock exerted some pressure on warehouse rents, although it still rose 0.5% q-o-q on extremely tight availability.
• Investment momentum slightly improved on the back of two enbloc transactions in 4Q22. China Resources Logistics purchased Kerry Warehouse (Sheung Shui) for HKD 1.6 billion from Kerry Properties, while Novel Industrial Building in Cheung Sha Wan was acquired by Blackstone’s Storefriendly for HKD 850 million and will be converted into a self-storage tower. 

Outlook: Vacancy rate to rise with another completion ahead

• Warehouse demand is expected to improve alongside a recovery in trade performance and boost consumption after inbound tourism resumes. The vacancy rate is likely to be further driven up after the completion of Cainiao Hong Kong Smart Gateway in 3Q23.
• Given the relatively low entry cost and the potential for asset repurposing, industrial properties will likely continue to garner attention from investors. The premise to value-add can offset the higher borrowing cost, and ideally allow the investment to benefit from capital appreciation upon exit.