Hong Kong’s industrial development needs a renaissance as new economy alters manufacturing landscape
- Revitalising industrial properties for housing or commercial uses have had its limitations amid growth in new economy
- Demand for ‘specialised factories’ showcases changes in industrial landscape, need for new approach in development
Over the last decade, Hong Kong has introduced various measures to give its ageing industrial buildings a new lease of life, to fulfil either short-term investment interests or mitigate land-supply shortage for residential use.
Applications to convert industrial buildings for transitional housing have been limited, simply because of the absence of an exit policy for property owners. In contrast, turning them into commercial use has been more than welcomed by businesses facing world-record rents in city centre.
As the new economy alters the landscape of traditional manufacturing bases, there has not been sufficient effort to give Hong Kong’s industrial development a rebirth.
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One simple reason is that many people have embraced the idea of a vanishing practical demand for industrial space.
The stock of traditional factories in Hong Kong has shrunk to 16.4 million sq m (176.5 million sq ft) 2018 from 17.9 million sq m in 1997, as a substantial portion of them was turned into commercial buildings under previous revitalisation efforts between 2010 and 2016.
Also, Hong Kong’s manufacturing sector has been on a steady decline since 2000. We estimate its share of industrial space has dropped by 3 million sq m through 2018.
In their absence, the slack has been absorbed by business sectors that made new homes in converted factories to escape from cutthroat rents in commercial buildings in business districts.
The story is similar in the storage business. Demand has been growing on the back of booming e-commerce and shrinking sizes of residential flats in Hong Kong.
Even so, the shift has not been sustainable. Given the small scale of existing stock, no new supply in sight, and a clearly defined market positioning in terms of practicality, demand for space soon fell over time.
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All these have given rise to so-called “specialised factories” to meet the modern requirements of business sectors.
Specialised factories, as industrial properties that are purpose-built for niche usage and occupation by a single operator or function, take into consideration tailor-made operational requirements of modern industrial development.
They include large floor plates, ultra-high ceilings, built-in machinery, and other special features that cannot be provided by most traditional flatted factories. Data centres and modern logistics development, as high-value added industries, are typical specialised factories.
Such is their popularity that the occupancy rate of these facilities in Hong Kong has reached more than 95 per cent. They are expected to set new rental benchmarks for industrial space, given their high upfront investment.
In the coming years, a considerable portion of demand for specialised factories will come from existing brownfield operations which are set to be relocated elsewhere as a result of planned new development areas. A quarter of these brownfield operations will already need area doubling the existing stock of specialised factory space.
Hong Kong is still one of the leading global financial centres going into 2020. But the city’s revitalisation efforts need to go beyond solving the shortage in housing and commercial space. In the new age of business disruption, its industrial development would need a renaissance.
Martin Wong is an associate director, research and consultancy for Greater China, at Knight Frank in Hong Kong
