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Demand for logistics facilities in Asia Pacific remained mixed in Q2 2016, with export-oriented economies such as Singapore, Hong Kong and Perth continuing to struggle, while cities with larger domestic markets, including tier I cities in China, Tokyo and Sydney, performed well, a CBRE report revealed.
The region also saw logistic rents increase 0.2 percent quarter-on-quarter, due to solid gains in Auckland (+2.1 percent), Shenzhen (+2.8 percent) and Shanghai (+5.0 percent).
Despite the large pipeline supply in Shanghai, a change in the city’s tax policy served as the major driver for the rental hike. Notably, a Value Added Tax (VAT) replaced the city’s Business Tax (BT) on 1 May 2016. Set at five percent during the transition period, the new VAT on gross rent is paid by the landlord but is being passed onto the tenant since it is generally tax deductible for latter.
On the other hand, Singapore and Perth lagged, with rents dropping 2.3 percent and 3.5 percent, respectively.
The report noted the mining cycle correction continued to drag rental growth in Perth, while rents in Singapore are weighed down by weak consumption, poor industrial demand and slow regional trade.
“Industrial capital values registered growth of 1.5 percent quarter-on-quarter in Q2 2016 but performance was polarised, with Tokyo, Shanghai, and Auckland recording strong growth of over four percent quarter-on-quarter, whereas Hong Kong and Singapore continued to fall by more than 2.0 percent quarter-on-quarter,” said CBRE.
It noted that investment demand for en-bloc factory buildings continued to decline in Hong Kong after the city’s revitalisation scheme ended in March 2016. Singapore’s subdued occupier market, on the other hand, continued to weigh on investor sentiment for industrial property.
Meanwhile, regional supply pipeline remains high, with 52.3 million sq ft of logistic space expected to be completed in 2016. Most new supply is concentrated in Shanghai, Tokyo, Seoul and Singapore.
CBRE believe the large volume of new supply will temper rental growth in the second half of 2016, especially in Sydney and Shanghai.
In Tokyo, around 12.8 million sq ft of supply is expected to be completed this year, but 72 percent has already been delivered. As such, vacancy is expected to decrease in 2H 2016 as new supply is absorbed.
“Markets in Australia are becoming more balanced supply-wise, with the 2016 pipeline approximately equal to the historical five-year average.”
With little land available for logistics development, Southern China remains undersupplied encouraging some occupiers in Guangzhou to turn to nearby cities such as Foshan. There is also development interest in multi-storey warehousing as market players in Shenzhen seek to alleviate the supply shortage.
“In Hong Kong, industrial land is rarely released for sale and the elevated capital values make redevelopment costly.”
With this, CBRE expects land constraints and industrial conversions to continue to force occupiers either outwards or upwards.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg