Industrial sector taken aback by surge in warehouse vacancy

Blame it on sluggish logistics demand.

It has been noted that a potential increase in warehouse vacancy in the second quarter due to slowing logistics demand from retailers and increasing competition from basic warehouses in the New Territories has already been predicted.

According to a research note from Savills, however, despite this predication, the surge in the warehouse vacancy rate (from 1.2% in Q1 to 2.8% in Q2, or an increase of over 1 million sq ft of vacant space) was still beyond its expectations.

The vacancy rate has been brought back to 2010 levels before the most recent rally began.

Here's more from Savills:

Key reasons behind this surge include the release of around 360,000 sq ft of space in ATL by several logistics operators and shipping companies in the face of a tougher retail environment and a weak trading performance, as well as the inclusion of the newly completed SF Center in Tsing Yi into our vacancy basket, when 6-months after completion (our standard timing to include any new-build into the basket), two fl oors amounting to 300,000 sq ft were still available for lease.

Another key factor behind the jump in warehouse vacancy was the re-launch of Kowloon Godown onto the market after two years of vacant possession. Although the 500,000-sq ft warehouse (another 500,000 sq ft of the premises is for cold-storage use) was eventually taken up by a logistics company (and its associates), the space they left behind elsewhere in the market was made available for lease and thus helped push vacancy up.

The 900,000-sq ft new logistics centre in Tsing Yi developed by Mapletree, which was previously earmarked for completion in 2016/17, was also released to the market for pre-leasing with the target completion date brought forward to early 2016. Reportedly two fl oors of the 11-floor warehouse have already been preleased, meaning that another nine fl oors (1.3 million sq ft in total) will soon be on the market for lease, competing with other
available stock.

With warehouse vacancy, in particular in Tsing Yi and the port area, increasing substantially and
likely to increase in the near future, landlords have become more fl exible in rental negotiations with
both existing and new tenants, and rents in the Kwai Chung / Tsing Yi area remained stable in Q2/2015
as a result.