Sales and rental outlook grim for I/O sector

PUBLISHED : Wednesday, 25 November, 1998, 12:00am
UPDATED : Wednesday, 25 November, 1998, 12:00am

The industrial-office (I/O) property market is expected to remain stagnant and negative in the near term in the face of a slowing economy and an abundant supply of new space, according to Chesterton Petty.

The property consultancy said both sale prices and rentals of I/O properties had dropped about 40 per cent from the peak levels last year.

Rents of I/O premises were likely to fall further since they faced competition with better-located grade-B office buildings, it said.

Some existing I/O tenants were moving to grade-B office buildings, being lured by better locations and facilities, it said.

Chesterton Petty expected the rental rate of I/O buildings might drop another 10 to 15 per cent to compete.

The gloomy market situation is being plagued by the large amount of new supply.

The consultant said new I/O space was expected to total about 2.3 million square feet in 1998, nearly three times the average annual supply since the introduction of I/O buildings in 1994.

Cheung Sha Wan, Tsuen Wan and Kwun Tong would account for 31 per cent, 29 per cent and 26 per cent respectively of new supply.

Overall I/O vacancy rates were expected to jump from last year's 26 per cent as a result of the new supply, it said.

Kwun Tong and Kowloon Bay had lost location advantage for some industrial-related operators following the closure of the Kai Tak airport.

Chesterton Petty said transport and freight-forwarding companies and distributors were moving to the industrial areas of west Kowloon to be closer to the new airport at Chek Lap Kok.

Several I/O and industrial buildings would come on stream in Kwun Tong in the next three years and this, with shrinking demand for industrial premises, would push up vacancy rates and drag down rentals in the area, it said.

It estimated prices and rentals of I/O buildings in Kwun Tong had dropped 30 to 50 per cent from peak levels last year.

Given the economic slowdown and the supply of new I/O buildings, developers were expected to launch projects at discount prices and rentals to draw buyers and tenants, it said.