Two notable leases recorded despite sluggish momentum

• The global luxury brand, Christian Dior, committed to lease a total GFA of 223,422 sq ft at Goodman Westlink in Tuen Mun.
• Meanwhile, Microsoft Datacenter Holdings pre-committed to a long lease of a portion of GDS’ upcoming data centre facility, HK2, in Kwai Chung. The facility is expected to come on stream in 2025.

Vacancy rate remains unchanged at 5.8%, mirroring the 3Q23 level

• The stable vacancy rate in 4Q23 suggested the limited new demand for warehouse spaces.
• The Phase 3 expansion project of DHL Central Asia Hub in the airport area was completed in November 2023, increasing the project’s GFA by 41% to 532,813 sq ft. This expansion is strategically positioned to enhance and bolster Hong Kong’s position as a leading global logistics hub, particularly in the handling of perishable goods transshipment, an area experiencing growing focus and demand.

Two enbloc transactions recorded in 4Q23

• The industrial properties investment market sentiment continued to improve modestly. Primarily driven by two enbloc transactions, investment volume (over USD 5 million excluding equity and land deals) surged by 184% q-o-q in 4Q23. The number of transactions rose from 10 in 3Q23 to 13 in 4Q23.
• One of the enbloc transactions was the acquisition of the fourth warehouse by China Resources within a two-year period, from Kerry Properties in Fanling, reportedly for HKD 1.0 billion (HKD 3,854 per sq ft, GFA).

Outlook: Rental decline to continue into 2024

• Warehouse demand is expected to weaken in 2024 with the estimated availability of marketable spaces remaining at high. Although the decline in trade is showing signs of moderation, the pace of recovery is anticipated to be gradual and is unlikely to boost prime warehouse rental rates.
• Given the declining rents, capital value is projected to continue its downward trajectory, accompanied by modest yield expansion, until the anticipated rate cuts in 2024.