HK warehouse rents fall for first time since 2016 - Savills

    In contrast with the weak general market, the industrial investment segment is proving to be relatively resilient thanks to redevelopment interest, according to real estate advisor Savills.
  The leasing market, however, recorded a rebound in vacancy rates and a mild fall in rents. The firm believes the new air freight safety regulations have boosted the space needs of air freight forwarders, though this new demand is expected to be short-lived.
  Although recent social unrest disrupted normal business and deterred even veteran property investors, with Revitalization Policy 2.0 in place and a maximum 20% GFA concession for industrial redevelopment attracting market attention, the industrial sales market is holding up well.
  Transaction volumes remained the same as 2Q while values increased by almost 50% mainly due to redevelopment demand. Nevertheless, volume and value still fell by 31% and 74%.  As such, industrial prices slipped marginally by 0.7% while warehouse prices fell by 1.2% over 3Q.
  The leasing market saw total imports/exports fall by 6.0% and 4.3% respectively in the first eight months of 2019. Coupled with a worsening retail performance due to both a reduction in tourist numbers and shrinking local spending (retail sales value declined by 23.0% in August alone and by 6.0% over the first eight months of 2019), cargo throughput has been hit hard with air cargo and container throughputs recording 6.5% and 7.3% decreases over the first eight months of 2019.
  With logistics demand dwindling, some logistics operators are already feeling the heat. Surrender cases have begun to occur with some 3PLs shedding space in the face of sharply reduced business. As such, overall vacancy rates rebounded to 2.2% in 3Q, with overall warehouse rents declining by 1.2% as a result.
  Basic warehouses in the New Territories have become popular again with lower rents (compared to modern warehouses) and more flexible lease terms (3 years or less).
  "The recent social unrest has dampened retail sales, while the trade war has hit exports which has translated into weaker logistics demand. While investment sentiment was weak in general, redevelopment interest is supporting the industrial sales market," said Simon Smith, Senior Director, Research & Consultancy, Savills.
  "Most industrial investors are either waiting on the sidelines or asking for aggressive discounts, but few landlords are willing to entertain at this point. In terms of leasing, the declining air/sea freight, as well as the grim local retail market outlook, are set to further dampen logistics demand, with more warehouse space likely to come available towards the beginning of next year, putting rents under further pressure over the next 3 to 6 months," added James Siu, Deputy Managing Director & Head of Kowloon Industrial, Savills.