In Focus
COMMERCIAL PROPERTY | Staff Reporter, Hong Kong

Can data centres prop up Hong Kong's slowing industrial sector?

Undaunted by trade jitters, operators are actively expanding in Tseung Kwan O.

Although heightening trade tensions have hit sentiment in Hong Kong’s industrial property sector, the industrial estate in Tseung Kwan O (TKO) remains abuzz with activity thanks to the relentless expansion of data centre players.

With roughly 3.4 million sq ft of data centres within the vicinity, TKO is rapidly shaping up to be a critical cluster of high grade data centres especially after the area received a significant boost when SUNeVision won the latest tender for a 1.2 million sq ft data centre site in Area 85 for a bid of around $5.46b or an AV of around $4,500 per sq ft. Together with MEGA Plus, SUNeVision recently opened tier four ready data centre which brings its premium space to 1.6 million sq ft in the next three to four years.

Also read: Hong Kong's data centre dreams hit by crippling land shortage

Beyond the active expansion of these hi-tech industrial players, the high price tag of the land for these buildings could just be the necessary stimulus that Hong Kong’s slowing industrial sector needs.

Savills notes that the $4,500 psf AV of the Area 85 site was 25% higher than the data centre site bought by the same company in Tsuen Wan at the beginning of 2019 and was five times higher than the MEGA Plus site tendered five years ago.

“The surge in average prices of data centre sites may well boost prices of industrial sites with similar potential, making it more difficult for data centre operators to expand their footprint in this growing segment,” Simon Smith of Savills Research said in a report. 

Overall industrial property prices recorded their first decline of 2.9% since end-2015 in response to weakening sentiment with the prices of flatted factories falling 2.9% in Q4, data from Savills show. I/O prices also dropped 2.5% whilst warehouse prices remained flat.

Also read: Trade tensions could clash commercial and industrial property deals by 12%

Similarly, year-end industrial transaction volumes crashed 54% and values plunged 59% as rattled investors put deals on hold in response to the market environment and as they wait for clearer policy guidelines with the relaunch of the revitalisation policy by April 2019.

As a result, tech tenants have been picking up the slack of traditional warehouse tenants who have been bearing the brunt of the protracted trade dispute since Q3 2018, according to a previous report from CBRE which identified data centres along with healthcare companies, F&B and cold storage providers as the slowing sector’s new growth drivers.

Hong Kong, together with Singapore, Sydney and Tokyo, rank as the preferred location for data centre investments in Asia-Pacific. JLL estimates that the SAR holds an estimated capacity of 285MW which is the third largest in APAC and trailing behind Tokyo’s 315W and Singapore’s 330MW.

Other data centre operators in Hong Kong include Singapore-based AirTrunk which leased 187,000 sq ft warehouse in Tsing Yi for its first Hong Kong location and the tender for 1.2 million sq ft data centre site Wan Po Road in Tseung Kwan O which is set to be the SAR’s largest data centre development. Chinese data centre operator GDS Services also acquired the CS Logistics Centre in Kwai Chung for $770m with plans to develop it into a 195,000 sq ft data centre.

Banner photo from NTT Communications

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