Logistics demand was unaffected by local and external uncertainties with renewals and expansions dominating the sector.

• The latest pandemic alongside external uncertainties has not had an impact on the local logistics scene so far with air freight and government logistics demand supporting the sector.
• Government’s intention to convert more brownfield sites in the New Territories into residential and commercial uses means fewer basic warehouses, pushing these tenants back to the general warehouse market.
• Overall and modern warehouse rents continued to rise by 0.3% and 0.5% in Q1/2022 respectively, while both overall and modern warehouse vacancy rates fell to 2.5% and 1.5% over the same quarter.
• Investment sentiment was dampened by the worsening local COVID situation, recent stock market turbulence and rising interest rates, with only two en-bloc industrial transactions recorded over the quarter.  Strata-sales of new industrial buildings also slowed given weak business prospects for SMEs and smaller investors.
• The Russia-Ukraine war, as well as the re-emergence of COVID infections in the Mainland will continue to cause global and regional supply chain disruption, which may likely have an adverse impact on the local logistics sector from Q2 onwards.
• With rate hikes likely throughout the rest of the year, the rising cost of capital should serve as a hurdle for industrial investment for both short and long-term investors.  Nevertheless, redevelopment demand should remain intact with developers still keen on run-down industrial buildings / sites with redevelopment potential.