Hong Kong warehouse rents slip 1.5% in Q1

The vacancy rate also declined from 1.5% to 0.9%.

The aggregate trade volume in Hong Kong grew moderately compared with the previous quarters. According to JLL, the total external trade increased by 9.3% y-o-y (YTD-February), with total imports and exports climbing by 8.1% and 10.6% y-o-y, respectively. Demand from trade-dependent operators appeared to have slightly slowed entering into 2022.

“The shift from offline shopping to online retail amid the tightening of social distancing measures bolstered the e-commerce sector and their demand for warehouse space, driving down the vacancy rate,” JLL says.

Here’s more from JLL:

Completion delayed, vacancies edged down further

Originally slated for completion in 1Q22, the completion date of Goodman Westlink in Tuen Mun was delayed due to epidemic-related issues. There were no further updates on the timing of expected completion.

The vacancy rate edged down from 1.5% to 0.9% with an estimated availability of 520,000 sq ft as of end-1Q22.

Rents and capital values increase

Warehouse occupiers, notably the online retailers, were active in taking space in anticipation of robust demand. As marketable space shrank, landlords raised the effective rents with shortened rent-free periods. Nonetheless, the level of leasing activities slowed slightly as the fifth wave of the COVID-19 hit. Overall, effective rent grew by 1.5% q-o-q in 1Q22.

The investment momentum was sustained despite the COVID-19 outbreak. One notable en-bloc transaction was Telecom Digital’s purchase of Wider Industrial Building in Kwun Tong from Tang Shing Bor family for HKD 733 million for self-use and long-term investment purposes.

Outlook: Investment momentum expected to continue in 2022

The warehouse sector is expected to be supported by the low vacancy level and surging demand coming from online businesses as well as the need to store medical supplies – a COVID-19-induced demand. These are likely to more than offset the moderation in the external trade sector.

Market yield is expected to be slightly compressed. Investors with operating platforms are keen to seek assets suitable for re-purposing although potentially higher funding costs and the current wave of epidemic are causing some pauses.

Note: Hong Kong Logistics & Industrial refers to Hong Kong's industrial warehouse market.