New pilot scheme to spur industrial investment: CBRE

The firm said $4.1b worth of investments were made in the first quarter of the year alone.

Hong Kong’s investment markets have shown a more optimistic sentiment, which CBRE sees to further improve the new land premium pilot scheme incentivise property development.

In its preliminary report, CBRE found a total of seven industrial properties might have transacted in the first quarter of 2021, amounting to $4.1b worth of investments. This is already over 70% of the $5.7b industrial assets transacted in the full year 2020, involving 19 deals.

CBRE sees this will further climb up as the Hong Kong government, through the Development Bureau, implement the new land premium pilot scheme.

“The pilot scheme will benefit the investment market as property developers and seasoned investors become incentivised to seek en-bloc industrial assets for redevelopment,” said Marcos Chan, head of research at CBRE Hong Kong.

“We expect that investors will display a strong appetite for suitable industrial properties in the coming two years as they look to capitalise on the current standard rates before the pilot scheme is reviewed in March 2023,” he added.

The scheme allows owners of industrial properties built earlier than 1987 to pay a standard land premium rate for lease modifications to facilitate building redevelopment.

The standard rates vary across five regions in Hong Kong and the three types of usage in lease modifications for industrial buildings such as industrial of godown use before redevelopment, commercial or modern industrial, and residential use after redevelopment. The rates range from $20,000-$130,000 per square metre.

This in effect simplifies the lengthy land premium assessment process, making it more attractive to land owners.

CBRE further observed a trend amongst property developers and seasoned investors seeking en-bloc industrial assets for redevelopment as seen in the share of acquired industrial buildings rise to 62% in 2020. This rose from 38% and 50% in 2018 and 2019, respectively.

“We have witnessed increased activity in the commercial real estate capital markets in Q1 as market sentiment improves,” said CBRE Hong Kong's Executive Director and Head of Capital Markets Reeves Yan.

“This is largely supported by the slower decline in real estate capital values and rents, ample liquidity in the market, low interest rates, and the recent removal of the Double Stamp Duty (DSD) for commercial properties,” he added.

He also noted that data centres and cold storage will particularly be sought after in 2021. Commercial assets catering to fast-growing sectors, such as technology, telecoms and pharmaceuticals will also be targeted by investors.