INDUSTRIAL PROPERTY
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Hong Kong Property

Is re-industrialisation the answer for Hong Kong?

There is an overwhelming backlog of legitimate users in the domestic market unable to secure sites

PUBLISHED : Monday, 25 January, 2016, 12:45pm
UPDATED : Monday, 25 January, 2016, 12:44pm

Over the past few years, we and many other industrialists have been urging the government to increase land supply to support existing industrial activity in Hong Kong. As such, we have been pleasantly surprised the government has recognised the issue and is pursuing avenues to address it. Unfortunately it would seem they have taken it a bit too far, with the recent policy address outlining a far-fetched “re-industrialising” Hong Kong policy which looks to have been taken straight out of a 1950s China “make steel” guidebook.

We heard in the policy address that “re-industrialisation” is a potential area of economic growth for Hong Kong, and that the government and the Hong Kong Science and Technology Parks Corporation (HKSTP) have revised the industrial estate policy accordingly. Apart from constructing multi-storey buildings in the estates for lease to innovation and technology industries, they will also recover idle factory premises. Apparently these new policies will be the catalyst to promoting smart production and attracting high-value-added technology industries.

While it is good to have aspirations, there is an overwhelming backlog of legitimate users in the domestic market unable to secure sites either through lack of supply or an inability to meet the HKSTP selection criteria. There needs to be a more open selection based on reasonable credentials reflecting genuine need.

From our extensive research and first-hand knowledge of user requirements, many industrial space users find it difficult if not impossible to find available solutions. There is a demand for high-end warehouses for distribution; land and buildings for data centre usage; low-cost multi-level warehouses for lower value goods; automotive workshops; food-processing plants; temperature-controlled storage and distribution centres; central kitchens and not surprisingly, the construction and engineering sector.

We could learn from Singapore and co-develop an industrial city in mainland China rather than try to squeeze blood out of a stone here

While there is some benefit in adopting a more active approach to redeveloping some sites which are either underutilised or not currently being used, this should be handled by way of a fair settlement to those existing occupiers. The newly developed plots for industrial use should be linked to open market pricing so as not to cause a significant distortion in values. If the government wants to promote certain industries, this can be done through tax and other investment incentives rather than through manipulated land releases.

The government has said it will identify sites near the Liantang/Heung Yuen Wai Boundary Control Point for the development of the Science Park and industrial estates. Having spent quite a bit of time on my bicycle in this area, this would appear quite feasible given there is not a lot going on there at the moment. However, the reason for industrialising these regions is that they are lightly developed and serve as a good counterbalance to the overcrowded city and suburban areas.

Brownfield land in more developed areas is available if proactive land policy is created. We understand this to be the case with the new blueprint areas for Yuen Long South, Hung Shui Kiu and Tuen Mun. If managed well with existing landowners and users, these brownfield areas have the potential to go a long way to solve the current undersupply of industrial land.

Ultimately, industrial land policy should be linked to current needs and support the local economy. We do not envisage there being any serious chance for Hong Kong to compete with our neighbours when it comes to scaled-up manufacturing activities. Hence if growth is desired then perhaps instead we could learn from Singapore and co-develop an industrial city in mainland China rather than try to squeeze blood out of a stone here.

A prime example of success that Hong Kong could follow would be Suzhou Industrial Park, which covers a total jurisdiction area of 288 sq km, among which 80 sq km belongs to the China-Singapore Cooperative Zone. This has been one of China’s fastest-growing development zones. The area has been achieving around 30 per cent annual average growth, ranking second among national development zones and generating in excess of 150 billion yuan of annual output value.

Zhuhai would be the perfect candidate for a co-developed industrial city for Hong Kong and the mainland. Zhuhai has infrastructure already in place – an expanding seaport and rail line into Gaolan, an underutilised airport, expressways, fast rail connections, a new CBD and leisure resorts. Better still, there are thousands of empty apartments which could be used to tempt workers currently living in Hong Kong to relocate there, helping to reduce the government’s need to turn half of Hong Kong into a high-rise slum. By adopting this approach, industrial land policy in Hong Kong could revert to its fundamental purpose; to support activities that enrich Hong Kong.

Currently, the industrial vacancy rate in Hong Kong remains at an unhealthy sub-3 per cent. This will only get worse as more than 100 industrial buildings are pending conversion to alternative uses within the next two to three years. Having said that, many of these conversions may not actually happen unless office market rental pushes significantly higher in those industrial areas, offering owners a financial incentive to finalise the conversion. It is for this reason, along with the prevalence of stratified buildings, that ultimately ensured the revitalization scheme was somewhat of a disappointment. While there have been a few excellent conversion projects, primarily in Kowloon East from the likes of Pamfleet and Gaw Capital, they have been few and far between.

The government policy failed to encourage the rejuvenation of enough industrial buildings, leaving 198 (13.7 per cent) in poor condition, according to the Planning Department. We remain hopeful a revitalization policy “Round 2” might emerge, delivered in tandem with industrial land releases. This would provide a smoother transition and in turn reduce the speculation which has accompanied the current policy, which along with a buoyant economy has resulted in capital values for flatted factories increasing by 145 per cent since 2010 and rents by 69 per cent. While good for investors, it certainly has not been the case for the majority of tenants.

Hong Kong is densely populated and land constrained. All sectors are competing for scarce resources. As such, development across the board should be carefully considered, taking an ultra-long-term view to ensure the best path forward for its people and the environment.

Darren Benson is executive director for industrial and logistics brokerage services at CBRE Asia