CBRE Special Report Shows Sustainable Development of Logistics Sector Needed Now to Ensure Hong Kong Remains Competitive
August 20, 2014, Beijing – Hong Kong has to balance development of its commercial industry with growth of the retail and logistics sectors - the two key pillars of the local economy - if it is to maintain its position as a leading economic and financial hub, said CBRE in its latest report, released today.
Phenomenal growth in Hong Kong’s retail sector is placing increasing pressure on storage needs in the territory, and inadequate warehouse facilities are not meeting demand in Hong Kong. This is leaving a clear imbalance between occupier demand and supply. Failure to address these issues now, will dampen Hong Kong’s presence as a trading and logistics hub, and hinder growth in its retail and tourist sectors.
Logistics – A Forgotten Pillar of the Hong Kong Economy
From a Government policy perspective, Hong Kong’s industrial land sales for warehousing have been scarce. This has led to little to no new supply over the past decade. In addition, vast amounts of current industrial stock is being rezoned or revitalized to facilitate residential and commercial developments, further depleting available options for industrial occupiers.
This lack of supply coupled with resilient demand has led to warehouse stock vacancy rates hitting a new low of 0.4% as of June 2014, decreasing from 1.1% at the end of 2013. Warehouse stock has only increased from 36.5 million sq. ft. at the end of 2004 to 38.3 million sq. ft. at the end of 2013, growing by only 5% in ten years.
Retailers – A Growing Source of Demand for Logistics Facilities
Hong Kong is the most targeted retail hot spot on the globe, attracting 43 new retailers last year, according to a recent survey completed by CBRE. With robust growth in tourist arrivals set to continue, Hong Kong’s retail sector is growing along with its demand for warehouse space. In 2013, retail sector tenants grew to take up approximately 50% of the warehouse space in Hong Kong.
According to CBRE data, a total of 4.7 million sq. ft. of prime shopping center space is expected to be completed between 2014 and 2018, averaging at 0.95 million sq. ft. per annum. In contrast, only 3 million sq. ft. of prime warehouse space is scheduled for completion over the same period of time, averaging only 0.6 million sq. ft. per annum. The persistent shortage of new warehouse supply in an already low vacancy environment remains the primary catalyst for pushing rentals even higher.
Darren Benson, Executive Director, Industrial and Logistics Services, CBRE Hong Kong, Macau and Taiwan commented, “At present, rental rates in Shenzhen are typically around 1/3 of that in Hong Kong on a per sq. ft. basis factoring in better cubic capacity. This differential is in most cases still not enough to encourage occupiers to go across the border for local distribution taking into account the challenging yet improving customs procedures and the time and distance to reach retail locations. However, if space availability in Hong Kong remains so limited, retailers and logistics operators may well be left with little choice but to relocate part or all of their options from Hong Kong.”
Sustainable Development for the Logistics Sector is Critical
The strong retail market is expected to remain a key demand driver for warehouse space in Hong Kong and the recently reported slowdown in growth momentum will unlikely leave a permanent dent on long-term warehouse demand. Despite this there is limited action to tackle the shortfall in the short-term. Not one industrial site is up for auction/tender on the 2014/15 Land Application List and the minimal land targeted for broader release, specifically in Tuen Mun, will likely not result in new buildings for many years to come.
The need for more warehouses is critical not only to contain spiraling costs but also to ensure that new supply delivered is of a better quality to keep pace with modern logistics requirements, especially for high turn-over and high-value products.
In recent years, many sophisticated global logistics developers have been growing their portfolios across mainland China but all find it difficult to build new and high-specification warehousing in Hong Kong due to a lack of land resources and the high cost of development if land does become available. This has left Hong Kong behind many Chinese cities in terms of logistics hardware availability.
“Given the limited warehouse supply in Hong Kong, I foresee increasing enquiries from retailers and logistics operators considering alternatives in Southern China. Whilst land supply in Southern China is also limited, there is far more option than in Hong Kong. Developers and investors remain positive and are keen to increase their portfolios to capture both the domestic distribution and regional hub requirements,” said Louisa Luo, Senior Director, Head of China, Industrial & Logistics Services, CBRE.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
