Modern warehouses saw rising vacancies with freight forwarders and 3PLs continuing to lose business due to global supply chain disruptions as well as weaker local consumption.

• The second quarter saw a continued drift in Hong Kong’s trading and retail performance negatively affecting logistics demand, particularly from end users, 3PLs and freight forwarders.  Market activity virtually ground to a halt over April and the first half of May as the virus outbreak hit a peak, but gradually resumed towards the end of May and June with many operators looking for cheaper accommodation options given the challenging conditions.
• While some were looking to relocate to cut costs, other larger operators decided to downsize to reduce overheads, and distressed operators surrendered their space midway through their leases leaving heavily invested renovations behind.  As a result, warehouse vacancy continued to increase to 3.3% in Q2/2020, with warehouse rents falling by 4.1%, the highest q-o-q downward adjustment since the GFC in 2009.
• Even though downsizing and business closures have been commonplace among logistics operators, demand was sustained from e-commerce logistics operators, food factories and mask manufacturers who took up warehouse and industrial spaces, though only in small parcels.
• While regional and global supply chains are gradually re-establishing themselves and retail activity levels are improving locally, any large-scale virus outbreak could kill off of any green shots of recovery in the logistics segment.  While redevelopment remains the main theme in the en-bloc industrial sales market and is likely to continue into the second half, the worsening business environment for most industrialists means that the buoyant investment sentiment in the stratified market may be more short-lived.