Colliers International, Hong Kong

Rents, Land and Capital Values of Industrial Properties in Most Cities Across Asia Pacific Took a Dive of Up to 40% 

Colliers International's latest bi-annual survey on the industrial real estate costs in Asia Pacific revealed that the industrial markets across the region has slipped into recession as a result of the lingering global financial crisis. 

The review between October 2008 and March 2009 saw a changing scenario when compared to the last report that indicated growth in the regional industrial market.  There has been a general contraction in rents, land and capital values of up to 40% for the cities surveyed, with the exception of Jakarta, Indonesia.

With the significant depreciation of Australia and New Zealand Dollars against the US Dollar, cities like Sydney, Melbourne, Auckland and Wellington have registered a more severe decline in their rents, land and capital values when measured in US Dollars. A decline was also seen for Jakarta due to the depreciation of the Indonesian Rupiah. 

On the contrary, industrial rents, land and capital values for Tokyo recorded a rise when measured in US dollar as the Japanese Yen had strengthened against the US Dollar between October 2008 and March 2009.

Falling rents across the region – except Jakarta and Wellington – due to cooling tenants' demand

Statistics showed that the financial-sector-led global downturn has filtered into the regional economy and affected consumption, which in turn caused a slump in the global demand for exports.  Many manufacturing plants were operating in excess capacity and have turned to cost-cutting measures such as reducing their workforce and real estate requirements as well as holding back their expansion plans.  These measures have led to a decline in the demand for industrial space and rents have contracted in all the cities surveyed, except Jakarta in Indonesia and Wellington in New Zealand.

Rents of industrial premises in Jakarta has defied pressures of the global financial crisis as local industrial landlords were focused on helping their tenants survive through this difficult time via measures such as allowing tenants to postpone the payment of their maintenance cost for one to two months at zero interest.

As for Wellington, rents were stable despite the weakening economic climate partially because supply was held in balance with levels of occupier demand. Greater difficulty in sourcing finance has reduced development activity and a number of developments were put on hold. Consequently, no new industrial developments were added to the supply pipeline during the review period.

Amongst all the types of industrial properties surveyed, factories in Hong Kong has registered the largest contraction in rent, with a 22% decline from the last review period.  "The industrial leasing market was dampened by the significant fall in Hong Kong's trade activity.  The overall re-export decline accelerated to -22.4% year-on-year (YoY) in February 2009.  Meanwhile, the total exports growth registered -23.0% YoY, the sharpest fall since the oil crisis in the 1970s," mentioned Simon Lo, Director of Research and Advisory, Colliers International Hong Kong.

"The worsening global trade on the back of global economic consolidation will remain the key factor limiting new leasing demand.  An increasing number of companies downsized their premises or relocated to cheaper alternatives in order to keep operating cost low," added Wayal Chiu, Director of Industrial, Colliers International Hong Kong.  "Rentals and capital values of factory premises in Hong Kong are forecast to see downward pressure."

According to the report, on factory monthly gross rents, seven districts in Greater Tokyo took the top 7 spots, ranging from US$2.79 to US$1.15 per sq ft, following by Sydney South at US$0.98 per sq ft, and Hong Kong at US$0.97 per sq ft.

Declining land and capital values region-wide due to weak investors' demand
 
Similarly, land and capital values of industrial properties have been pressured down by weak investors' demand in all cities surveyed, except Jakarta. Investors continued to remain cautious in the face of uncertain economic conditions and declining rents. Stricter requirements by banks resulting in a lower loan-to-value ratio and higher borrowing rates, also constrained sales.

Jakarta was the only city, where industrial land values remained stable and did not succumb to downward pressures of the global financial crisis. The local land values were propped up by the increase in Sales Value of Taxable Object (or "NJOP" as known in Indonesia) issued by the Government of Indonesia. This is the value on which tax is computed for land ownership in Indonesia.

Amongst all the types of industrial properties surveyed, low quality multi-user factories in Hong Kong has registered the largest contraction in capital values, with a 34% decline during the review period. 

Outlook

Going forward, given that the economies of most cities in Asia Pacific are likely to still be in a recession in the next 12 months notwithstanding the interest rates cuts and large stimulus budget, demand for industrial properties is likely to remain weak across the region.

With the exception of Jakarta and Shanghai where rents, land and capital values are expected to hold firm due to domestic demands and the economic stimulus introduced by the Central Government to support the manufacturing sector, respectively, the remaining cities surveyed are forecast to see declines of up to 30% over the next 12 months.

-end-

About Colliers International

Colliers Macaulay Nicolls Inc. (CMN) operating as Colliers International is a leading global real estate services company that provides a full range of services to real estate users, owners and investors worldwide. Colliers operates in 294 offices in 61 countries.  In Asia Pacific, Colliers has 64 offices in 15 countries.  Services include brokerage, property management, hotel investment sales and consulting, corporate services, valuation, consulting and appraisal services, mortgage banking and research.  Colliers International is a worldwide affiliation of independently owned and operated companies.  Locally, Colliers professionals serve clients in Hong Kong.

Contact Information

May Chow        
Regional Manager
Communications and PR, Hong Kong Marketing
Colliers International (Hong Kong) Ltd
Tel    852 2822 0736
Fax   852 2868 5275
Email: May.Chow@colliers.com

 back to top