Kerry Properties

Storage boom as stores rush in

PUBLISHED : Wednesday, 05 October, 2011, 12:00am
UPDATED : Wednesday, 05 October, 2011, 12:00am


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The accelerating march of international retailers into Hong Kong is sparking strong demand for warehousing space, pushing occupancy rates at logistics centres to record levels, and rents almost back to the peaks of 2008.

'Demand for warehouse and logistic centres in Hong Kong is driven primarily by the storage and distribution requirements of retailers, supported by the insatiable appetite of the mainland shopper,' Darren Benson, senior director of industrial and logistics services at property consultancy CB Richard Ellis Hong Kong, said.

The resulting competition for warehousing and storage space between retailers as well as third-party logistics companies that provide such services has, in turn, pushed up rents.

The Goodman Group, the biggest warehouse landlord in Hong Kong, is signing up tenants for its Interlink warehouse and distribution development in the Tsing Yi port district at HK$12 per square foot. (Rents for high-quality warehouse space range from HK$8 to HK$12 per square foot.)

Valued at more than HK$4 billion, Interlink is still under construction; when complete, it will provide 2.4 million square feet of space.

Among its major competitors in the warehousing and logistics industry in Hong Kong are Kerry Properties (a subsidiary of the Kerry Group, the largest shareholder of the SCMP Group, publisher of the South China Morning Post), ATL Logistics and Mapletree Logistics.

According to Benson, the most recent expansion in the sector saw international express delivery company TNT Express open a 100,000 sq ft specialist facility catering to the fashion industry within the ATL Logistics Centre at Kwai Chung.

The deal pushed the warehouse and logistics centre market to record occupancy levels of 99 per cent, and rents have been climbing steadily because of the shortage of supply.

Property consultancy CBRE said rents in the warehouse sector were almost back to their 2008 peak, with the average rent now HK$6.80 per square foot against HK$7 then.

There have been some other big deals in the sector. A&F, an international fashion space retailer increased its warehouse space from 80,000 square feet to 100,000 square feet in ATL. Home furnishing group IKEA took up an additional 60,000 square feet of space in ATL, and Spanish clothing and accessories retailer Zara leased 45,000 square feet in the Texaco Centre in Tsuen Wan.

The strong demand was also reflected in a record pre-commitment rate of 100 per cent at the new Interlink facility, even though the centre will not open until early next year.

Philip Pearce, managing director for Greater China at Goodman Group, said retailers and third-party logistics companies had become prominent in the group's tenant mix. Three years ago they accounted for just 3 per cent, but now occupied about 20 per cent.

Luigi Rapetti, managing director of third-party logistics company OM Log, said the company had been expanding over the past few years and now leased 550,000 square feet in Goodman's Western Plaza in Tuen Mun.

'We are required by our clients to expand as they forecast they will expand business in Hong Kong and Asia,' Rapetti said.

OM Log, which provides warehousing and distribution services to fashion industry clients from the United States and Europe, would consider an expansion in Asia, including Hong Kong, in the near future as more international companies turned their attention to Asia in the face of the economic slowdown in the US and Europe, he said.

Goodman's Pearce said storage requirements would stay high as long as mainlanders continued to visit Hong Kong.

In August, arrivals from across the border grew by 23 per cent year on year to more than 2.91 million - the highest total yet in a single month.

The sustained growth of the mainland economy and the appreciation of the yuan provided extra incentives for holidaymakers, especially families, to visit Hong Kong in the summer.

Benson said the leasing market for high-quality warehouse space would continue to be strongly supported by limited supply.

'Unless there is a total collapse of the global markets, we anticipate the strong demand for warehouse space to continue through 2011 and into 2012,' he said.