Warehouse rents in Hong Kong keep pace with shop lease costs

Warehouse rents have jumped in step with the staggering pace of the city's shop rents, with the cost of a prime container port warehouse expected to double over a decade, according to real estate consultancy CBRE.

"Warehouse rents have gone up by 60 per cent in the last five years while street-level shop rents in Tsim Sha Tsui, for example, have also gone up some 60 per cent over the same period," said Marcos Chan, head of research for CBRE Hong Kong, Macau and Taiwan.

The surge is the product of tight supply of warehousing space. A vacancy rate of 4 per cent in warehousing is effectively full capacity, CBRE said, but Hong Kong's rate has been below 1 per cent since June.

In the last 10 years, retail sales have ballooned 186 per cent thanks to robust demand from mainland tourist shoppers, yet only four parcels of land have been released for warehousing.

"We talked to retailers. They are frustrated and are having difficulty in finding good-quality warehouse space," Chan said.

Warehouse rents are squeezing an already strained retail sector, which has been dealt this year with slowing economic growth and a month of protests that have affected shopping hubs such as Causeway Bay and Mong Kok.

Retail sales shrank year on year for six consecutive months from February, before rebounding slightly in August.

"There are no new projects next year, maybe one or two sites in 2016," said Darren Benson, executive director of industrial and logistics services for CBRE Hong Kong, Macau and Taiwan.

"Total new supply in the next three to four years is only going to be four million square feet. It's not going to be a big increase."

"The growth rate is 6 to 7 per cent per annum on prime warehousing. If you're looking at big direct accessible space in the container port, you're looking at HK$15 per square foot. Four or five years ago you would have been looking at HK$10. Our prediction is around HK$20 by 2020," Benson said.

Although storage rent in Shenzhen is about a third of the cost in Hong Kong, a cross-border solution is not ideal given the extra time and customs regulations.

"Most people might think there's all this warehouse [space] across the border, why don't we just use the warehouse there? But it's not quite that straightforward," Benson said.

"Trucking costs to get across are much higher, you've also got time delays and proximity to market."

Generally, stock is brought over from Guangzhou either by truck or barge. However, the Kwai Tsing container port is already facing congestion problems, especially around year-ends, when Asia-based manufacturers scramble to get cargoes out in time for the Christmas and New Year holiday shopping spree in the West.

The possibility of using Zhuhai, once the Hong Kong-Zhuhai-Macau bridge is finished in 2016, is still an unknown until toll prices for the bridge are announced.

"It's the same issue with the Shenzhen border. It's not that far physically but cost-wise, it is. It requires a policy change at the border crossing to make that reality," Benson said.