Hong Kong industrial rents to increase by up to 5% this year

Strong domestic demand is expected to support this forecast.

External trade further recovered in 4Q21 despite supply bottlenecks in many places around the world. According to JLL, aggregate trade value registered a steady YTD increase of 25.7% (Jan – Nov 2021), with total imports and exports rising by 24.9% and 26.5%, respectively.

Benefiting from visible trade growth with major trading partners, especially Mainland China, more transactions and enquiries arose from logistics companies during the quarter.

Here’s more from JLL:

No new supply was completed during the quarter, while the much-anticipated Goodman Westlink in Tuen Mun is expected to complete in 1H22.

The overall vacancy stayed at a healthy level, and dropped further to approximately 0.84 million sq ft (1.5%) as at end-4Q21. Total net absorption for 2021 reached around 0.8 million sq ft, a level not seen in the past ten years.

Rents and capital values continue to grow

During the quarter, the positive market outlook and competitive landscape for quality warehouse space have lifted confidence among landlords. In addition, a lower vacancy rate coupled with a shortened rent-free period drove net effective rents to rise by 1.7% q-o-q, to HKD 12.6 per sq ft per month.

In 4Q21, investors remained keen towards the industrial assets, although investment momentum slowed down. Notably, Link REIT acquired an institutional grade car park/car service centre and a godown building for a total consideration of HKD 5.82 billion from Jardine Matheson. Both properties came with 5-year sale and leaseback arrangements to Zung Fu Company.

Outlook: Market strength is expected to continue into 2022

We expect the export momentum to sustain in 2022 amid global economic recovery. Domestic demand underpin positive rental forecast to rise 0-5% in 2022, while capital values nudging on an upward trajectory, despite possible headwind from another wave of the pandemic.

We also expect some compressions in market yields in 2022 given strong capital inflows. Institutional investors are likely to stay active and keen on re-purposing opportunities for alternate uses.

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