While merchandise trade and air freight showed significant rebounds with growth rates of 6.8% and 16.3% respectively, sea freight and cold storage faced challenges in a challenging environment, according to Savills in its Market in Minutes – Hong Kong Industrial Sales and Leasing report of February 2024.

Merchandise Trade and Air Freight Showed Significant Recoveries
During Q4/2023, the logistics market in Hong Kong experienced mixed results. While merchandise trade and air freight demonstrated significant recoveries, with growth rates of 6.8% and 16.3% respectively. These improvements were attributed to the revival of regional trades, cross-border distribution, and efficient supply chain logistics operations.

Challenges in Cold Storage Sector
The local logistics industry encountered notable challenges, especially in the cold storage segment, due to the declining performance of the food and beverage sector. This led to a decline in business during the fourth quarter, resulting in some operators running their cold storage facilities at only 50% capacity. Additionally, the trend of Hongkongers traveling to Shenzhen on weekends for shopping and dining negatively affected local retail and food and beverage sentiment.

As a result, lease renewals and tenant movements were the primary activities observed in the market during Q4, while relocations and expansions were minimal. However, SF Express stood out by acquiring the 4th floor of SF Centre for self-utilization.

CaiNiao's New Warehouse and Landlord Flexibility Drove Rental Decline
The CaiNiao Smart Gateway at the airport obtained official approval during Q4. With a total lettable area of 4.1 million square feet, the facility actively seeks the relocation of large-scale logistics operators. As a result, the overall and modern warehouse vacancy rates increased to 7.3% and 10.4% respectively. Warehouse landlords faced with larger tenants' lease expiries, and to ensure high occupancy rates, are likely to adopt a more flexible approach in rental terms, resulting in an overall decline of approximately 1% in rents for both overall and modern warehouses.

Surge in En-Bloc Deals Drove Activity in Hong Kong's Q4 Sales Market, While Stratified Sales Remain Subdued
In contrast to the leasing market, the sales market witnessed unexpected activity in Q4, marked by the completion of two significant en-bloc deals. CR Logistics acquired Kerry Warehouse (Fanling 1) from Kerry for HK$1 billion, viewing it as a long-term investment opportunity. Blackstone and Storefriendly also acquired the en-bloc Hale Weal Industrial Building in Tsuen Wan for HK$560 million, which will operate as a self-storage facility following the conversion process. However, the stratified sales market experienced a more subdued performance, with a recorded decline of 16.9% quarter-on-quarter, totalling 384 transactions in Q4.

Selective Demand for Conversion Properties Amid Financing Challenges
In the sales market, the potential implementation of a 1 percentage point rate cut in 2024 is anticipated to have a positive impact on market sentiment. However, demand for conversion properties will be selective. While self-storage facilities continue to be an appealing option, other conversion prospects such as cold storage and data centres face challenges in attracting additional investment interest. The recovering logistics sector might generate some investment interest, but difficulties in securing financing could impede yield-driven acquisitions in the near term.

Mr. Jack Tong, Director, Research & Consultancy of Savills commented, “Logistics market faced mixed external factors in Q4/2023 with rebounding merchandise trade and air freight, while sea freight and cold storage continued to face challenging environment.”

Mr. James Siu, Deputy Managing Director, Head of Kowloon, Industrial Development & Investment of Savills said, “The anticipated recovery in external trade performance and the resumption of retail sales are expected to provide a solid foundation for logistics demand in 2024. The continued growth of local and cross-border e-commerce further strengthens the outlook for logistics demand in the coming months.”