Investment in Hong Kong's logistics and industrial property declined by more than half in the third quarter of the year, as a period of worsening social unrest crimped domestic consumption and dampened sentiment.
Data from Real Capital Analytics, which tracks deals worth at least US$10 million, show that investment in industrial buildings came to US$719.9 million, down by 51.6 per cent from the roughly US$1.5 billion invested in the segment in the same period of 2018.
Industrial properties include warehouses, cold storage facilities, data centres and logistics centres.
In the first 11 months of the year, investment in the segment amounted to US$2.7 billion, making it unlikely to match the US$5.95 billion it received in the whole of 2018.
"The industrial investment market cooled down due to both internal and external shocks to investment sentiment," said Samuel Lai, senior director, advisory and transaction services " industrial at CBRE Hong Kong.
Hong Kong officially tipped into a recession in the third quarter of the year with the economy shrinking 3.2 per cent from the previous quarter as it struggled under the double whammy of the US-China trade war and massive anti-government protests.
"The unrest in Hong Kong has brought domestic consumption to a halt, and this had a ripple effect into the industrial sector including the warehouse sector," Lai said. The trade dispute between Washington and Beijing also dragged down trade volumes, which affected logistics centres, he added.
Despite the decline in investment, the segment has remained fairly resilient owing to tight supply and steady demand in Hong Kong, with warehouse vacancy at 1.7 per cent in the third quarter, the lowest in five years. Investment yield for the segment grew by 10 basis points this year.
The total supply of industrial space in Hong Kong is 2 million square feet, and there is only one source of new supply in the pipeline. In 2021, logistics sites at Siu Lang Shui Road in Tuen Mun purchased by an investment fund managed by Goodman Group will provide about 1.6 million square feet of warehouse space.
One reason for the tight supply is Hong Kong government policies that encourage the renovation of old industrial buildings for commercial purposes, to generate higher rents and resale prices.
In Yau Tong three industrial facilities " including Hung Shing Industrial Building, and Yue Xiu Cold Storage and Warehouse " are being converted into about 2,300 flats. In Tuen Mun three industrial buildings have been redeveloped into hotels, providing 728 rooms.
Demand, particularly for data centres, is likely to remain healthy in 2020. Data centres are secure, temperature-controlled facilities equipped with multiple power sources and high-bandwidth internet connections. They are used by enterprises to remotely store large amounts of data, manage business applications and host cloud computing operations.
"We particularly anticipate an increase in data centre redevelopment," said Russell Lam, director, capital markets, Colliers International Hong Kong. "Data centres is a segment that remains relatively resilient due to the expanding need for data storage."
Property consultancy JLL, meanwhile, noted that among all the property segments in Hong Kong only warehouses' capital values have grown this year, rising by 2 per cent. The outlook for next year is very different though. Capital values could decline by as much as 10 per cent, according to JLL.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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