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US crisis ripples through Asia Pacific industrial property markets

The biannual report, covering 12 cities in eight countries in the region, highlighted that the growth of the industrial property markets in most Asia Pacific cities has slowed when compared to the previous review period.  The economic downturn in major economies around the world has affected demand for exports by Asia Pacific cities. This, in turn, has dampened demand for industrial premises and slowed new constructions.

The uncertainties in global financial markets, tightening in credit conditions and increased costs of funding have cooled investment sentiments in most Asia Pacific cities.  As a result, acquisitions of industrial premises have dwindled for the past months.  Moreover, this same set of factors has reinforced leasing as a more cost-effective option compared to owning an industrial premises.

Against such a backdrop, growth in land and capital values, and rents of industrial premises eased in most Asia Pacific cities during the six-month period ending September 2008 with those in some markets such as Sydney, Tokyo and Hong Kong slipping into negative territory. With the global economy likely to enter into a protracted downturn on the back of the deepening financial crisis, the industrial property markets in the Asia Pacific region can be expected to cool further. While Melbourne, Beijing, Shanghai, Delhi and Jakarta may continue to see upsides in industrial land and capital values and rents to a varying extent, those in Sydney, Hong Kong, Singapore, Tokyo, Auckland and Wellington are largely forecast to remain flat or slide in the next 12 months.

Hong Kong
According to the AP Industrial Market Overview, recent deterioration in the external environment has indeed led to waning demand for factories in Hong Kong.  From March to August 2008, the growth of rents and capital values tapered off. The average rents for factories rose by 3.1% to HK$8.33 per sq ft during this period, down from the 4.5% increase recorded during the preceding six-month period. Capital values experienced a more significant slowdown in growth in the same period, from 19.3% to 8.2%.

Wayal Chiu, Director of Industrial Services commented, "Many factories in the southern part of China are suffering from the problem of short-term cash flow. Prevailing credit crunch further reduces the confidence of manufacturers who either refuse or are reluctant to take new orders.   Low private consumption causes the trade slowdown, which has a negative impact on the manufacturing sector in countries such as China, and subsequently the re-export industry in Hong Kong."

"The positive sign is that many governments in Europe and in the United States are introducing various economic measures to stimulate the economies.  We expect the tough trading environment may gradually ease off in 2009 though it is still difficult to predict when the industrial property market sector will start to pick up," added Wayal. 

Statistics show that while genuine end-users remained keen in acquiring suitable industrial units for occupational purpose over the long term, their buying decisions have been delayed due to the general rise in funding costs and growing economic uncertainties.  Investors have also turned cautious given the uncertainty in rental growth over the near-to-medium terms.

In the investment market, the number of sale transactions declined 30.2% compared with the preceding six-month period to 2,511. If the external environment deteriorates, industrial rents and capital values could decline by some 12.0% on average in the next 12 months.

On the warehouse sector, the sustained demand for quality warehouse premises supported the rental performance of warehouse premises. During six-month period ended in August, the average rents of warehouses with cargo lift access and ramp access edged up by 2.0% to HK$6.64 per sq ft per month and 2.6% to HK$9.5 per sq ft per month respectively. Capital values of the former increased by 4.9% to HK$1,763 per sq ft while those for the latter increased by a faster 7.9% to HK$1,990 per sq ft.

"Relatively speaking, the warehouse market is expected to be one of the most resilient industrial property sub-sectors amid the prevailing financial turmoil," said Simon Lo, Director of Research & Advisory.  "As such, rents for warehouses with ramp access and cargo lift access are forecast to see a milder decline of up to 5.0% and 7.0%, respectively, in the next 12 months compared to those for factory premises. Capital values, on the other hand, are forecast to decline by 8.0% for warehouses with ramp access and a bigger drop of 10.0% for those with cargo lift access over the same time period."