Savills News

Q2 saw few major industrial transactions, while warehouse rents are holding up well for now

Hong Kong - 08 July 2019 Prominent real estate advisor Savills pointed out in its Q2/2019 Industrial Briefing that industrial sales sentiment was subdued by external uncertainties and deal volumes declined significantly. However, with vacancy remaining extremely tight (1.9% overall and 0.8% for modern warehouses), the warehouse sector actually recorded a rental increase. Investment sentiment is expected to remain cautious with the ongoing trade situation and the volatile stock market, and volumes are expected to remain low while prices may hold up for another few months.

• Industrial transactions by value hit a recent low, while the leasing market posted its worst start since 2016

• Warehouse rents may hold up given no worsening of the external environment

• The longer-term prospects of the logistics sector will depend on any ultimate rapprochement between the US and China

Hong Kong - 08 July 2019 Prominent real estate advisor Savills pointed out in its Q2/2019 Industrial Briefing that industrial sales sentiment was subdued by external uncertainties and deal volumes declined significantly. However, with vacancy remaining extremely tight (1.9% overall and 0.8% for modern warehouses), the warehouse sector actually recorded a rental increase. Investment sentiment is expected to remain cautious with the ongoing trade situation and the volatile stock market, and volumes are expected to remain low while prices may hold up for another few months.

When compared with Q1, industrial transaction values and volumes both declined by 10% and 59% respectively over Q2, hitting a recent low for the total consideration at only HK$1 billion. In fact, no en-bloc industrial transactions were recorded, with only three transactions of over HK$100 million (i.e. 45 workshops and 18 carparks in EW International Tower - HK$306.8 million; the new godown / workshop project at 22 Wing Kin Road in Kwai Chung - HK$193.65 million; Gemstar Tower, 23 Man Lok Street in Hong Hom - HK$112.27 million). However, industrial prices rose marginally (+1.7%) while warehouse prices remained flat over Q2.

In the leasing market, the trade conflict has translated into a decline in cargo throughputs, with air and container throughputs falling by 6.0% and 7.7% over the first five months of the year respectively. This was the worst start to a year since 2016, when the US Fed started raising rates. Although most logistics operators were still working on billings incurred in 1H/2019 with their businesses remaining active, leasing transactions were hard to come by with many tenants adopting a wait-and-see attitude, inducing most of them to renew their leases rather than relocating or expanding.

Mr. Simon Smith, Senior Director, Research & Consultancy, Savills commented: “The impact of the US / China trade tensions has translated into declining cargo throughput and retail sales, as well as fewer industrial sales and leasing transactions over Q2/2019, with prices and rents remaining intact for the moment.”

Mr. James Siu, Deputy Managing Director & Head of Kowloon Industrial, Savills said: “Despite the cooler industrial market, we saw at least 10 applications since the inception of the 20% plot ratio relaxation policy for industrial redevelopment came into effect in October 2018. Three applications have already been approved with a maximum plot ratio relaxation, showing Government’s intention to encourage such redevelopment. This area is a key focus of investors right now.”

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