• Despite the widespread economic damage caused by the pandemic, supermarket operations and e-commerce logistics have been least affected.
• 3PLs and freight forwarders have seen a dramatic decline in business and are downsizing causing vacancy to spike
• Landlords have generally taken a firm stance in lease negotiations and rents have only softened slightly
• In positive news, industrial sites and redevelopment opportunities are attracting plenty of interest and many developers are eager to replenish landbanks

The COVID-19 outbreak which began at the turn of the year has disrupted first Mainland China and now global supply chains, resulting in a dismal local trading performance. While local retail sentiment was also knocked back, supermarkets as well as online retailing have remained relatively unaffected as people have continued to shop for necessities and shifted to online over the past three months.

Most 3PLs and freight forwarders are facing a dramatic decline in business with the chaos in supply chains and the reduction in local retail sales. As a result, some have chosen to downside propelling warehouse vacancy from 2.2% in Q4/2019 to 4.2% in Q1/2020.

While many landlords remained flexible in lease negotiations, most of them were not prepared to entertain the rental concessions demanded by tenants from the start of the year, which helped rents post a milder-than-expected decline of 1.2% and 1.8% respectively for overall and modern warehouses in Q1.

Developers are seeing the current crisis as an opportunity to kick start redevelopment projects with a number of industrial sites transacted during the quarter. Nevertheless, such optimism has not filtered through to the strata-titled market as smaller occupiers / potential purchasers are fighting for survival.

The challenging short-term business prospects of many traders and industrialists are expected to limit their buying activity in the strata-title industrial market, while industrial sites and buildings with redevelopment potential will continue to attract interest over the next few months as many developers are eager to replenish commercial landbanks.

Mr. Simon Smith, Senior Director, Research & Consultancy commented: “Warehouse vacancies are on the rise given the underwhelming trading and retail performance with the outbreak affecting both global supply chains and local retail sentiment. Nevertheless, many developers are seeing this as a golden opportunity to kick start redevelopment projects with a number of industrial sites changing hands as a result.”

Mr. James Siu, Deputy Managing Director & Head of Kowloon Industrial said: “Despite the generally downbeat retail and trading news recently, investors and developers are being attracted to industrial and logistics assets for both their defensive characteristics as well as their longer-term growth potential.”