Hong Kong Must Address Retailers Storage Needs Now
Hong Kong Must Address Retailers Storage Needs Now
August 18, 2014
CBRE Special Report Shows Sustainable Development of Logistics Sector Needed Now to Ensure Hong Kong Remains Competitive
Hong Kong, August 18, 2014 — Hong Kong has to balance development of its commercial industry with growth of the retail and logistics sectors - the two key pillars of the local economy - if it is to maintain its position as a leading economic and financial hub, said CBRE in its latest report, released today.
Phenomenal growth in Hong Kong’s retail sector is placing increasing pressure on storage needs in the territory, and inadequate warehouse facilities are not meeting demand in Hong Kong. This is leaving a clear imbalance between occupier demand and supply. Failure to address these issues now, will dampen Hong Kong’s presence as a trading and logistics hub, and hinder growth in its retail and tourist sectors.
Logistics – A Forgotten Pillar of the Hong Kong Economy
From a Government policy perspective, Hong Kong’s industrial land sales for warehousing have been scarce. This has led to little to no new supply over the past decade. In addition, vast amounts of current industrial stock is being rezoned or revitalized to facilitate residential and commercial developments, further depleting available options for industrial occupiers.
“While the government has been proactive in recent times in replenishing domestic and commercial land supply, the industrial market, specifically for logistics use has been largely left out of the equation,” said Darren Benson, Executive Director, Industrial and Logistics Services, CBRE Hong Kong, Macau and Taiwan.
This lack of supply coupled with resilient demand has led to warehouse stock vacancy rates hitting a new low of 0.4% as of June 2014, decreasing from 1.1% at the end of 2013. Warehouse stock has only increased from 36.5 million sq. ft. at the end of 2004 to 38.3 million sq. ft. at the end of 2013, growing by only 5% in ten years.
“Slow growth in warehouse stock is due to a lack of government land tender sales for logistics usage,” said Benson. “Over the last decade only four sites have been sold by the government, providing only 3.7 million sq. ft. of additional warehouse stock, and representing only 6.2% of the maximum floor space of all government land being auctioned or tendered during the period.”
Retailers – A Growing Source of Demand for Logistics Facilities
Hong Kong is the most targeted retail hot spot on the globe, attracting 43 new retailers last year, according to a recent survey completed by CBRE. With robust growth in tourist arrivals set to continue, Hong Kong’s retail sector is growing along with its demand for warehouse space. In 2013, retail sector tenants grew to take up approximately 50% of the warehouse space in Hong Kong.
According to CBRE data, a total of 4.7 million sq. ft. of prime shopping center space is expected to be completed between 2014 and 2018, averaging at 0.95 million sq. ft. per annum. In contrast, only 3 million sq. ft. of prime warehouse space is scheduled for completion over the same period of time, averaging only 0.6 million sq. ft. per annum. The persistent shortage of new warehouse supply in an already low vacancy environment remains the primary catalyst for pushing rentals even higher.
“In the next five years, there will continue to be an imbalanced level of supply between retail and warehousing in Hong Kong, “ said Benson. “Increasing tourist arrivals will drive retail sales growth and therefore give increasing importance for retailers to establish or expand their logistics footprint in Hong Kong”
Sustainable Development for the Logistics Sector is Critical
The strong retail market is expected to remain a key demand driver for warehouse space in Hong Kong and the recently reported slowdown in growth momentum will unlikely leave a permanent dent on long-term warehouse demand. Despite this there is limited action to tackle the shortfall in the short-term. Not one industrial site is up for auction/tender on the 2014/15 Land Application List and the minimal land targeted for broader release, specifically in Tuen Mun, will likely not result in new buildings for many years to come.
The need for more warehouses is critical not only to contain spiraling costs but also to ensure that new supply delivered is of a better quality to keep pace with modern logistics requirements, especially for high turn-over and high-value products.
In recent years, many sophisticated global logistics developers have been growing their portfolios across mainland China but all find it difficult to build new and high-specification warehousing in Hong Kong due to a lack of land resources and the high cost of development if land does become available. This has left Hong Kong behind many Chinese cities in terms of logistics hardware availability.
Marcos Chan, Head of Research, CBRE Hong Kong, Macau and Taiwan commented, “At present, rental rates in Shenzhen are typically around 1/3 of that in Hong Kong on a per sq. ft. basis factoring in better cubic capacity. This differential is in most cases still not enough to encourage occupiers to go across the border for local distribution taking into account the challenging yet improving customs procedures and the time and distance to reach retail locations. However, if space availability in Hong Kong remains so limited, retailers and logistics operators may well be left with little choice but to relocate part or all of their options from Hong Kong.”
The next decade will see Hong Kong continuing to develop as a premium location for trade and tourism within the Greater Pearl River Delta mega-metropolis.
Hong Kong must leverage the upcoming metamorphosis of the Pearl River Delta economy. More shopping malls and more hotels will be required and the territory must prepare a better blueprint for its future logistics sector development to complement the growth of its hospitality and retail industries, and maintain its presence as a trading and logistics hub.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.