Warehouse rents rise due to limited supply

Rents in Hong Kong's warehouse sector have shot up because of a shortage caused by robust retail demand, and the limited supply could eventually harm the city's competitiveness, according to industry players.

"Compared with four to five years ago, we see rents have gone up by almost 50 per cent," said Jacques Chan, general manager of US-based BDP International's Hong Kong and South China division.

BDP is a privately held, family-owned global logistics provider with annual sales exceeding US$2 billion.

While the government's focus is on building homes, industry players said more land would be needed for use by industry for their warehousing needs. This is true even if retail market growth slows if the government takes steps to limit mainland tourist numbers, since the warehouse supply situation remained tight, Chan said.

According to Savills, the warehouse sector was the only one which recorded any sort of rental growth among all property sectors in Hong Kong, with rents increasing by 2.8 per cent in the first quarter of 2014.

"Warehouse rent is expected to sustain a 5 per cent to 10 per cent growth over 2014 due to extremely tight availability [a vacancy rate of less than 1 per cent] and continuous demand from logistics operators," said James Siu, head of Kowloon industrial and commercial sales for Savills.

Richard Bolte, chief executive of BDP, said his clients still like Hong Kong due to the good infrastructure and reliability. "But if there is a shortage [of warehouses] in Hong Kong, it could affect its competitiveness," he said. Over time, the escalating prices for warehouse space "will drive business out of Hong Kong," he added.

Bolte does not expect the government to increase supply for warehouse use as the administration's focus is on boosting the supply of homes.

The government has tried to help by identifying two logistics sites in the Tuen Mun West area with a total gross floor area of around 2.5 million square feet, which are pending traffic impact assessment and seeking local support.

It also has a longer-term solution in the Hung Shui Kiu New Development Area, where 62 hectares of land is earmarked for logistics use, according to Savills. Property consultancy JLL said increasing supply would not necessarily help given sharp competition from nearby cities such as Shenzhen.

Hong Kong's ranking in container throughput slipped to fourth in the world in 2013, behind Shanghai, Singapore and Shenzhen.

Darren Benson, executive director of industrial and logistics services for CBRE Hong Kong, Macau and Taiwan, urged the government to increase supply for industrial use, pointing in particular to the vehicle sector which is struggling to find space for its operations in the city.

"The government has pursued active policies to promote the office/residential and retail sectors which has had a corresponding impact of reducing the supply of industrial land/industrial property in Hong Kong," Benson said.