There was significant growth in imports and exports, alongside challenges in logistics demand and cautious market conditions, according to Savills in its Market in Minutes – Hong Kong Industrial Sales and Leasing report of September 2024.

Positive Trade Trends Amid Mixed Logistics Performance
The macroeconomic landscape continued to improve in Q2 2024, with imports rising by 7.4% and exports by 12.5% QoQ. This growth was largely fueled by strong merchandise trade with major partners, including Mainland China, the United States, and Europe. Air freight showed significant recovery, achieving a growth of 16.6% from April to June 2024. In contrast, container throughput experienced a decline of 7.5% during the same period, following a modest rebound in Q1 2024.

Cautious Expansion in Logistics Amid Weak Local Demand
Despite the positive trends in logistics metrics, local demand for logistics services remained subdued, highlighted by a 6.1% drop in retail sales over the first five months of 2024. As a result, many logistics operators have opted for a cautious approach to expansion and relocation, leading to a limited number of leasing transactions. Notably, SF Express has expanded its operations by leasing 120,000 square feet at Smile Centre, enhancing its existing presence in various warehouses, including SF Center in Tsing Yi.

Vacancy Rates Decline
CaiNiao Smart Gateway at the airport has been proactive in its leasing efforts, reporting that nearly half of its available space has been occupied by affiliate operators and some relocating from Modern Terminals (MTL) and The Airport Freight Forwarding Centre (AFFC). Consequently, overall warehouse vacancy rates slightly decreased to 7.5%, with modern warehouse vacancy rates at 9.1% in Q2 2024. However, rising holding costs and the potential for additional vacant spaces have prompted landlords to adopt more flexible rental negotiations, resulting in a 1.9% drop in warehouse rents during this quarter.

Limited Sales Activity Amid Declining Prices in the Market
The sales market remained quiet, with only two significant transactions exceeding HK$100 million completed during this period. One floor in Gemstar Tower, Hung Hom, was sold for HK$210 million, while two units in Safety Godown, Chai Wan, fetched HK$100 million, both intended for investment. Reports indicate that two industrial blocks in Tuen Mun (One Vista Summit and One Vista Supreme) are likely to be sold for HK$1.4 billion to a Singaporean fund following the original owners' default on interest payments. As a result, the prices of flatted factories and warehouses decreased by 2.1% and 2.5% QoQ, respectively.

Regulatory Changes Introduce Flexibility, Yet Market Stagnation Persists
Recent amendments to Cap 545 have lowered the compulsory sale application thresholds for industrial buildings in non-industrial zones aged 30 years or older from 80% to 70%, while also allowing greater flexibility for multiple adjoining-lot compulsory sale applications. However, given the current stagnation in both the residential and commercial markets, significant industrial compulsory sale campaigns are unlikely to commence in the near future.

Future Trade Growth Countered by Logistics Challenges
Looking ahead, while we expect continued strengthening in import/export trades and air freight, this may be offset by a decline in sea freight and retail-related logistics demand. Furthermore, an increasing number of Mainland cross-border e-commerce businesses are choosing to establish warehouse operations directly at points of sale, such as SHEIN's new cross-border fulfillment center in Mexico, which may further contribute to ongoing weakness in logistics demand in the short term.

Mr. Jack Tong, Director, Research & Consultancy of Savills commented, “In Q2 2024, imports and exports increased significantly, while logistics demand weakened. SF Express expanded its presence, and warehouse vacancy rates declined amid cautious market conditions.”

Mr. James Siu, Deputy Managing Director, Head of Kowloon, Industrial Development & Investment of Savills said, “Investment and redevelopment interest in industrial properties is anticipated to remain limited until there is a clear shift in interest rates later this year, along with banks' attitudes towards lending in the non-residential market. End users may become the primary buyers in the market.”

Download Savills in its Market in Minutes – Hong Kong Industrial Sales and Leasing report of September 2024 here.

For further information, please contact Jack Tong, Director, Research & Consultancy Savills (Hong Kong), James Siu, Deputy Managing Director, Head of Kowloon Savills (Hong Kong) and Oscar Chow, Senior Director, Deputy Head of Industrial & Kowloon Commercial Sales Savills (Hong Kong) as the details below.