Here are some of Hong Kong's key industrial lease renewals in Q1

Most of the renewals were driven by 3PL operators.

Hong Kong’s industrial leasing market was dominated by renewals in 1Q23 with most of them driven by the third-party logistics operators, according to JLL. For example, Geodis Hong Kong renewed its lease of 57,040 sq ft at Tuen Mun Distribution Centre Block 2 while Dimerco Air Forwarders extended its stay in ATL Logistic Centre (33,949 sq ft).

Besides 3PLs, some activity was seen in the cold storage segment. ParknShop renewed the lease of its cold storage at 6 Ka Fu Close in Sheung Shui with a GFA of 139,931 sq ft while Meisei Hong Kong expanded its cold storage facility in Goodman Shatin Logistics Centre Phase II by committing an extra floor for 14,206 sq ft.

Here’s more from JLL:

The overall vacancy rate stood at 1.9%, a similar level to the previous quarter. The net absorption was about 20,000 sq ft.

The warehouse stock is expected to add 4.1 million sq ft (GFA) provided by Cainiao Hong Kong Smart Gateway near the airport in 3Q23.

Rental growth stabilises in 1Q23 with a mild rise in capital value

The rental trend was broadly stable with rents of prime warehouses edging up by 0.8% q-o-q.

Investment sentiment was timid and only one enbloc transaction was recorded. Local investor Angela Leung reportedly sold Tungtex Building in Kwun Tong for HKD 790.0 million (HKD 7,467 per sq ft, GFA). The buyer is understood to be the owner of the adjacent industrial building. It is expected that the owner will merge the two sites for redevelopment into an office building.

Outlook: Stable rental growth to be expected

While prime warehouse rents may face pressure due to the considerable new space brought about by Cainiao Hong Kong Smart Gateway in 3Q23, the pressure is likely to be moderate and short-lived. A substantial proportion being owner-occupied in the new facility, as well as expansion demand alongside a recovering economy, should lend support to the overall stable rental trend.

The relatively high yield of industrial properties and generally benign demand/supply dynamics render the asset class strongly appealing to investors. The potential to re-purpose industrial assets for alternative uses further enhances the attractiveness of industrial assets to investors who plan to intensively operate them to address niche demand for space.

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