Quantitative Easing

Prices of industrial and retail space soar

As buyers look to hedge against inflation and cash depreciation, prices for HK industrial and retail property rise at an unprecedented rate

PUBLISHED : Wednesday, 24 October, 2012, 12:00am
UPDATED : Wednesday, 24 October, 2012, 2:56am

Investors turned to aggressively buying Hong Kong industrial and retail properties as a hedge against inflation and cash depreciation after the launch of a third round of liquidity-boosting measures by the US Federal Reserve.

Data from listed real estate agency Midland IC&I show transactions in industrial, office and retail properties increased by 24.7 per cent, 16.8 per cent, and 19.2 per cent respectively from September 14 - the day the additional quantitative easing, or QE3, measures were announced - to October 13, compared with the previous 29-day period.

However, sales of office properties over the same period dropped 27.3 per cent to HK$2.81 billion, with most of deals being for small lump-sum properties.

The surge in demand for industrial properties had driven prices up some 20 per cent since the middle of September, according to Alvan Chan, a director of industrial properties at the firm.

"Almost half the transactions every day are record-breaking in terms of prices per square foot. I have worked in the industry for 20 years and have never seen this happen before," he said.

Among all non-residential properties, the industrial market recorded the sharpest growth in sales, said Pierre Wong Tsz-wa, Midland IC&I deputy chairman.

Data from Centaline Property Agency also shows strong demand for industrial properties, tracking a rise in sales to HK$3.64 billion over the first three quarters of this year.

That figure is higher than the annual sales totals for the past 17 years.

Midland's Chan said properties in Kwun Tong and Kowloon Bay were targeted because the districts were being turned into business areas. Metro Centre in Kowloon Bay was among the targets. Space in the building sold for between HK$3,000 and HK$4,000 per square foot early this year, but now sells for HK$6,000 to HK$7,000 per square foot. Other industrial properties in demand were small units worth less than HK$3 million, said Chan.

"It has now become difficult to find investment properties in either the retail or office markets less than HK$3 million, and the government has also imposed special stamp duties on residential properties, which have also seen sharp price increases," said Chan. "But properties in this price range are still available in the industrial market and most buyers are looking to speculate."

Chan cited the example of an 889 sq ft industrial unit at the Hoi Luen Industrial Centre in Kwun Tong, which sold for HK$2.82 million in May. It was resold a month later for HK$2.98 million, and just two weeks later was again sold for HK$3.33 million.

"Many investors will sell their properties if they get an offer that is 10 or 20 per cent higher than their acquisition cost. They calculate that even if they can't find a quick buyer, they can keep the properties for leasing and enjoy rental yields of 3 to 4 per cent."

Investors had become more active in the market since the launch of QE3, he said, because they regarded property as an effective hedge against inflation and cash depreciation. The trend will ensure that prices of industrial properties will rise further in the fourth quarter, he said.

Lawrence Wong Wai-man, a director at Sheraton International Real Estate, said transactions in the retail market were also active, particularly in Wan Chai and Central.