Hong Kong’s industrial property rentals seen to rise 12%

Investors are also starting to pay more attention to industrial premises as revitalisation of industrial buildings policy brings renewed demand for industrial premises.

The overall industrial market continued to enjoy positive spillover from the traditional office sector as a result of the sustained increase in office rentals, according to Colliers International’s The Knowledge research and forecast report on Hong Kong’s industrial market.

Prime quality factories and I-O premises are favoured by a group of tenants seeking suitable premises for office/showroom uses. In addition, a group of existing third-party logistics companies and foreign logistics operators are searching for quality warehousing premises in order to capture the growing logistics demand that is outsourced by some major corporations. These logistics operators look for warehouse premises with physical provision of ramp access, with sizes ranging from 30,000 to 100,000 sq ft and ceiling heights of 15 ft or above, as well as location in Kwai Chung, Tsuen Wan and Tsing Yi.

Meanwhile, 777,200 sq ft (on an internal floor area basis) of new warehouse premises is expected for completion in 2011, which is below the long-term average of 1.1 million sq ft per annum, according to a Colliers International.

Amidst sustained demand and limited supply, industrial rental increased further in 2Q 2011. With sustained demand from logistics operators, the average rental of ramp access warehouses increased 5.5% QoQ to HK$9.28 per sq ft per month as at the end of May 2011, which outperformed the other types of industrial properties. Meanwhile, the average rental of factory, cargo lift access warehouse and industrial-office registered a growth of 4.0% to 5.4% QoQ.

On the sales front, the industrial market continued to see keen buying interest in 2Q. “In addition to industrial occupiers, investors are also starting to pay more attention to industrial premises - due to the eligibility of wholesale conversion of industrial premises into commercial and office use - under the government’s revitalisation of industrial buildings policy,” says Simon Lo, Executive Director of Research & Advisory at Colliers International Asia. “As at the end of May, the average price of different types of industrial property continued to rise, with growth rate ranging from 7.1% to 11.1% QoQ.”

Over the past quarter, individual transaction translated an initial yield of 3.3%, which is significantly below the average market level of about 4% for industrial buildings. “The lower yield is largely correlated to the additional demand flowing in from investors who are keen on acquiring industrial premises. With this sustained buying interests from both investors and end users alike, industrial capital values are projected to increase 18% - 20% over the next twelve months,” adds Lo.

From a rental perspective, industrial property rentals are anticipated to increase 12% over the next twelve months.