This month’s Watch report overviews the Hong Kong logistics market. Hong Kong is a major distribution hub for the regional and global economy, not to mention a point of consumption for almost 8 million residents and 65 million tourists who visit each year. With one of the world’s largest cargo airports, a seaport which handles the fifth largest volume of container traffic globally and an increasing number of rail and road links being built to improve connectivity to China and Macau, Hong Kong’s infrastructure is critical to its competitiveness in logistics. Its advanced human resources, customs laws and IT systems are key variables in its success as well. Its logistics real estate also plays an important role. Demand-side indicators are solid, albeit decelerating from long-term average growth levels. But it is the supply side – hardly any construction is underway or planned – which appears very muted in the next five years and should thus push an already low vacancy rate of 3.3% even lower. Notwithstanding these positive supply-demand fundamentals, Hong Kong has among the world’s lowest yields, and given that its currency is pegged to the USD and in light of the forecast Federal Reserve rate hikes, upward pressure will be placed on yields. After a 10-year historic average annual total return (unlevered) of 19%, Hong Kong logistics is expected to have returns that moderate considerably in the coming five-year period.
Source : CBRE Global Investors