• Industrial sales market rebounded in en-bloc / majority share deals with reviving sentiment
• Shrinking vacancies induced many landlords to raise rents in Q1/2019
• Revitalization policy may not be as appealing
• E-commerce and limited modern warehouse supply should support further rental growth
Hong Kong - 29 April 2019 Prominent real estate advisor Savills saw overall and modern warehouse rents increased by 1.6% and 2.6% respectively in Q1/2019. With vacancy remaining tight (1.8% overall and 0.7% for modern warehouses), many tenants chose to renew their leases. The sales market saw renewed interest in en-bloc / majority share deals with reviving sentiment, and industrial prices rebounded across all three subsectors. We expect warehouse vacancy to remain tight with warehouse rents continuing to head north.
In the investment market, industrial transaction value and volume both rebounded when compared with the previous quarter by 5% and 67% respectively, though they remain some way off 1H/2018 levels. Anticipation of an end to the current rate hike as well as the reintroduction of the revitalization policy both boosted market sentiment, with a few en-bloc / majority share deals recorded with a view to redevelopment. Investors became active again looking for redevelopment / conversion opportunities, while industrial landlords were also alerted to the maximum potential 20% GFA relaxation for redevelopment. With the upbeat investment sentiment and raised transaction volume, industrial prices rebounded by 1.1% over Q1.
The warehouse leasing market recovered swiftly after a brief dip towards the end of last year, mainly due to improved sentiment over a possible US / China trade resolution, with shrinking vacancies inducing many landlords to raise rents. As vacancy remained tight, many expiring tenants chose to renew their leases, with sizeable renewals for MNCs such as Carlsberg and DHL being recorded in ATL and Goodman Interlink respectively.
Mr. James Siu, Deputy Managing Director & Head of Kowloon Industrial said: “Investment sentiment looks set to be more buoyant over the next few months with the interest rate issue all but settled, but with more restrictions on revitalization this time round (10% of the floor area should be designated for specific uses prescribed by the government), we expect more investment interest in industrial buildings for redevelopment eligible to the maximum 20% GFA relaxation.”
Mr. Simon Smith, Senior Director, Research & Consultancy said: “The lack of available space has forced many large scale 3PLs and end users to renew their existing leases, with landlords becoming more bullish in rental negotiations. Looking ahead, the prospects of the logistics sector will still very much depend on the outcome of the US / China trade negotiations, e-commerce and limited modern warehouse supply should support further rental growth.”