Home > HK
Thursday, August 18, 2016, 23:22

Higher rental yields luring investors to industrial sector

By Lin Wenjie
Higher rental yields luring investors to industrial sector
With the potential of high rental yields, industrial properties in the city may be a value boon for investors, although the local market had shown signs of weakening in the first half of this year. ( Jerome Favre / Bloomberg)

With prices of Hong Kong homes having gone through the roof, industrial properties may have become the darling of real estate investors.

Pundits now see industrial properties as “hidden treasures” with the potential of high rental yields although the local market had shown signs of weakening in the first half of this year.

According to the latest statistics from the Rating and Valuation Department, the price gap between residential and industrial properties has remained wide, with the average price of a residential apartment of less than 40 square meters in the New Territories standing at HK$97,834 per square meter in June, compared with HK$43,350 per square meter for a private flatted factory in the same district.

Although the number of transactions involving industrial buildings had plummeted by more than 43 percent in the first half of this year to 1,215 from a year earlier, it rebounded to 291 last month alone, with a total value of nearly HK$2.5 billion — up 16.4 percent on the previous month.

“Despite the tumble in the first half of the year, rental yields from industrial properties have grown slightly, reflecting solid demand. So, I believe the sector’s performance will definitely be better in the second half,” said Alvan Chan Wai-chi, a director of property agency Midland Industrial — the industrial unit of local real estate agency Midland Realty.

Chan said the cooling down in transactions in the first half was mainly due to the lackluster residential property market, as potential investors opted to buy small-sized residential alternatives, whose prices have dropped to as low as HK$2 million.

He expects overall prices of industrial buildings in Hong Kong to climb steadily within a range of 5 percent in the second half of this year, while rentals are likely to go up by between 5 and 10 percent.

Higher rental yields luring investors to industrial sector

Chan believes the government is likely to relax mortgage restrictions on industrial properties in the second half, which may lead to a 50-percent hike in transactions.

For the longer term, he predicted that industrial properties will be in short supply by 2018.

“The vacancy rate of private flatted factories in Hong Kong had fallen by only 5 percent in 2015, compared with 6.7 percent in 2010, which reflects strong demand. Supply has also tightened, with industrial premises completed annually having dropped to 33,780 square meters between 2006 and 2015 — from 50,940 square meters between 1996 and 2005. Total industrial property quantity fell 1 percent in 2015 from a year earlier,” Chan said. “From the above statistics, we estimate there’ll be an industrial land shortage of 980,000 square meters in 2018.”

Pat Wong Tung-hung, regional sales director at Centaline Commercial, said investors are enthusiastic about industrial properties due to the high rental yields on offer.

“Industrial properties are hidden treasures if you find the right property and the investment can be very lucrative,” he said.

In his view, industrial properties in Kwun Tong are a good bet as the district is densely populated with adequate supporting facilities.

He said industrial rental yields in Kwun Tong could reach 5 percent, while average rental yields for commercial and shop properties have stayed at between 2 and 3 percent.

According to the Rating and Valuation Department, the average rental yield of private flatted factories in June was 3.2 percent, compared with 2.6 percent for retail properties and 3 percent for Grade-A office buildings.

“Then, the mini-storage fire (in Ngau Tau Kok in late June) also affected transactions in industrial properties. The government has stepped up checks on self-storage facilities following the blaze, keeping buyers on the sidelines. As we know, more than 49.6 percent of industrial properties in Hong Kong are being used for storage and manufacturing purposes,” he said.

In addition, Chan said the expiration of the government’s revitalization program in March had dented transactions involving entire industrial buildings.

Statistics showed there have been only three transactions for whole industrial buildings so far this year.

The revitalization program for old industrial buildings was implemented in 2010 and expired on March 31 this year. It was aimed at encouraging property owners to redevelop industrial buildings for hotel or commercial use with the incentive of not having to pay land premiums.

Latest News