Growth in the Singaporean industrial market continues apace. Meanwhile, despite rebounding slightly, a subsector of Hong Kong’s industrial market, industrial warehousing, is struggling to overcome an exceptionally low vacancy rate of around 1%. The situations in both APAC markets have implications for future real estate investment.
Consider these statistics about the state of Singapore’s industrial market:
Q2 of 2022 was the seventh consecutive quarter of growth for the JTC all-industrial property price and rental indices. Not only that, but, climbing 1.5% QoQ, this represented the fastest quarterly rate of growth that the rental index had experienced in almost a decade.
Clearly, Singapore boasts a burgeoning industrial market and, in consequence, is a compelling real estate investment opportunity. Today, we’re going to discuss this promising state of affairs in more detail and compare it to the ultra-low vacancy rates currently being seen in Hong Kong’s industrial warehousing market.
Singapore’s Industrial Market Growth
Andrew Lee, BlackRock’s Head of Investments for Southeast Asia real estate, recently said:
“Singapore industrial is a very good fit for our value-add strategy of building a portfolio of high-quality income-producing properties for core investors that offer a good yield spread to borrowing costs…Even after adjusting for shorter land leases, Singapore still offers one of the highest yields across developed APAC markets.”
The Lion City’s level of cap rate compression is among the lowest in Asia-Pacific as well and its business parks and logistics assets deliver respective yields of 5.5% and 6.5%. In combination with strong tenancy profiles – most tenants work in high-paying industries like logistics, medical technology, and tech – and with good spread to borrowing costs, the sector should continue to outperform.
Hong Kong’s Industrial Warehousing Challenges
The expansion of Singapore’s industrial market is in stark contrast to Hong Kong’s industrial warehousing market. Hovering at around 1%, the vacancy rate is incredibly low, dropping even further in the first half of 2022.
This unfortunate situation is being driven by numerous factors, chief among them is high domestic demand for both flatted factories and prime warehouses.
Yet the issue’s being exacerbated by an ongoing revitalisation scheme that’s reducing the amount of available commercial space. Indeed, almost two-thirds of Hong Kong’s industrial buildings were built prior to 1987 and many are inadequate for modern storage requirements. The majority tend to be demolished and redeveloped as commercial or residential properties, leading to further reductions in available storage.
Thankfully, although stock remains extremely low, there are some small signs of improvement. In Q3 of this year, for instance, the overall vacancy rate climbed to 2.1%; for modern warehouses, it rebounded to 1.4%.
Implications for Real Estate Investment in Both APAC Markets
As we’ve just discussed, Singapore represents a compelling real estate investment opportunity. As BlackRock’s Lee puts it:
“Singapore industrial offers what investors are looking for – high yield, good spread to borrowing costs, and exposure to defensive companies.”
This could be especially true for investors with a pan-Asia portfolio. Because of these aforementioned benefits, Singaporean industrial investments help to balance, or prop up, the yield profile of other pan-Asia assets.
As for Hong Kong, the demolition of outdated spaces to make way for commercial and residential properties suggests there are ample opportunities for real estate investment here too. Not only is there clear demand for new storage solutions, but the government is currently prioritising redevelopment over refurbishment.
Trust Aurex Group to Handle Your Recruiting Needs
Due to growth in the Singaporean industrial market and supply issues in Hong Kong’s industrial warehousing market, there are new opportunities for real estate investment in both of these APAC marketplaces.
If you're an investor in industrial real estate, then we welcome the opportunity to present our services and capabilities. If you are a candidate, please check our jobs page or contact us to discuss your background, skills, and future aspirations. We always look forward to keeping in touch and exchanging ideas, insights, and opinions.
https://www.colliers.com/en-sg/research/2022-q2-singapore-industrial-quarterly-report-colliers https://www.mingtiandi.com/real-estate/events/blackrock-hines-realterm-on-singapore-industrial/ https://realestateasia.com/industrial/news/what-does-hong-kong-warehouses-ultra-low-vacancy-rate-mean-industry https://realestateasia.com/industrial/news/two-deals-stood-out-in-hong-kongs-industrial-leasing-market
Managing Director | Partner, Hong Kong
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