Demand for industrial buildings remains stable amid US-China trade war

Office rents edge higher even as leasing demand continues to moderate

June 26, 2019

HONG KONG, 26 June 2019 – Although the US-China trade war has cast a shadow over Hong Kong’s economy, the industrial property market continues to be a bright spot, according to JLL’s latest Property Market Monitor released today.

Driven by expansion requirements from logistics companies, demand for industrial property remained largely intact in May with several large transactions being recorded. In the leasing market, Geodis expanded in YKK Building Phase 2 in Tuen Mun, taking up the entire 19th floor of the building (34,100 sq ft). Meanwhile, Laws Property Group has reportedly acquired an industrial building at 822 Lai Chi Kok Road in Cheung Sha Wan from Hang Lung Properties for HKD 1.4 billion (HKD 14,870 per sq ft) with plans to revitalise the building into an industrial, retail and commercial property. This latest transactions suggests that the government’s scheme to revitalise older industrial buildings is benefitting the market.

Denis Ma, Head of Research at JLL, said: “Despite uncertainties in the macro-environment, the growth potential of older industrial properties that are suitable for revitalisation continues to draw the interest of investors into the market. Areas that are receiving the greatest interest include those with significant housing supply and those undergoing gentrification. This is one of the key reasons, why we expect the capital value of industrial properties to grow by about 5% in 2019.”

In the office leasing market, net absorption of 1.47 million sq ft was registered in May. A significant proportion, however, was largely attributed to the realisation of pre-commitments in newly completed buildings. Excluding the impact of new supply, net absorption amounted to 196,400 sq ft. Leasing activity remained focused on decentralised areas as tenants continued to seek out cost-effective options. Among the more notable transactions, FTLife Insurance reportedly leased 94,500 sq ft at NEO in Kwun Tong, relocating out of offices in Sheung Wan.

Overall, market rents increased 0.3% m-o-m in May, underpinned by growth in Tsimshatsui and Hong Kong East. The strongest growth was recorded in Hong Kong East, where rents advanced 1.4% m-o-m as the vacancy rate tightened to 1.5% at the end of May, the lowest among all districts.

Alex Barnes, Head of Markets at JLL, said: “Although the recent slowdown in leasing activity in Central has pushed vacancy rates higher, we continue to see active expansion requirements from a smaller section of the finance and legal sectors. As a result, any pressure on landlords to significantly lower rents in the coming months will remain limited to a handful of buildings with higher vacancy risks.”

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