Major transactions boost industrial sales market big-time in 2Q14

Values doubled q-o-q despite decrease in volumes.

Ten major transactions of over HK$30 million were concluded in Q2/2014, a 27% and 56% decline when compared with last quarter and a year ago respectively.

According to a research report from Savills, nevertheless, despite a decrease in volumes, values in fact doubled quarter-on-quarter, indicating that higher value properties (mainly en bloc) are being pursued by both investors and end users.

The largest industrial transaction over the quarter was Goodman’s purchase of Central Textiles Factory in Tsuen Wan for HK$1 billion, eyeing a long-term redevelopment into a modern logistics facility for lease.

Other significant deals closed over the quarter include the sale of both blocks of Harrington Building in Tsuen Wan (223,800 sq ft) to Bonjour Cosmetics for HK$490 million (HK$2,189 per sq ft) for partial owner occupation and partial investment, and the sale of Nan Sing Industrial Building (119,170 sq ft) in Kwai Chung to Law’s Property for HK$382 million (HK$3,206 per sq ft) for its redevelopment potential.

Here’s more from Savills:

Revitalisation has long been the driving force of the industrial market but the relatively long payback period (several years of incremental rents to pay back the initial outlay on refurbishment) has been the stumbling block for many.\

Recently, Tai Cheong had an innovative idea to solve this problem: In 2012, they received revitalisation approval to turn Metropole Square in Shek Mun into offices.

Instead of launching the project for lease they will stratify the property with asking prices of around HK$6,000 per sq ft per floor.

What is new is that each strata-owner has to sign a consent letter for the revitalisation executed in 2012, meaning that while the ownership may be stratified, there will always be 100% owner consent for the revitalisation and thus no revitalisation requirements are violated.

If the project is successfully sold, this will vastly shorten the payback period for a revitalised project and may increase its attractiveness to other landlords.