Warehouse rents to fall up to 3% in 2027 despite Northern Metropolis demand

Cost-sensitive tenants keep rents under pressure, said CBRE. 

Hong Kong warehouse rents are expected to fall another 1% to 3% in 2027, despite stronger leasing demand from businesses relocating under the Northern Metropolis development and companies supporting data centre expansion.

Rents have fallen by about 20% to 25% from their peak, although the pace of decline is slowing, said Samuel Lai, Managing Director and Head of Industrial & Logistics Leasing at CBRE.

“A major driver of these transactions we’ve seen this year is a very cost-conscious group of users from the north, who are typically moving from temporary warehouses back to the city,” he told Asian Business Channel.

Lai estimated that around 30 million square feet of space associated with forced relocations would return to the leasing market over the next five years.

He said landlords are accommodating these cost-sensitive tenants to reduce vacancy, keeping rents under pressure despite improving leasing demand.

Another source of demand is the expansion of artificial intelligence infrastructure and data centres. “All the long-lead items, including air conditioning systems and generators, and more importantly, chips, semiconductors and GPUs, are being brought in from around the world.”

“Companies are holding more inventory in Hong Kong,” Lai added.

In a separate Colliers report, Hong Kong’s industrial vacancy rate eased to 9.9%, whilst warehouse rents declined 0.8% quarter-on-quarter.

The property consultancy also reported a cumulative 19% rental correction from the 2023 peak, with leasing demand concentrated among third-party logistics and electronics companies.

With vacancy remaining close to 10%, Lai said tenants have opportunities to negotiate rental reductions, restructure existing leases or secure new warehouse space.

For landlords, he recommended negotiating lease renewals earlier and offering more flexible terms, including shorter leases or allowing tenants to downsize, to retain them within their portfolios.

He also suggested improving warehouse handover conditions to minimise relocation costs for tenants, particularly when moving into larger or alternative spaces.

Meanwhile, more landlords are supporting warehouse automation to improve operational efficiency and address labour shortages in Hong Kong, Lai added.