The urge to industrial property re-development

There is growing concern among entrepreneur that the property costs of doing business in Hong Kong are close to unsustainable levels. It is a logical thinking that using the industrial sector as a source of land supply as this sector is a easy target of public opinion will not form in its favor.

Given Hong Kong’s diminished manufacturing industries, the public often think the need for the need of industrial space is also going down. However, the reality is very different.

Logistics facilities, light industry, back office/cheap office locations, as well as rapidly growing data centre play great demand for industrial space today.

In 1990s, garment and electronics manufacturing industries, which were once the pillar industries of Hong Kong since 60s, moved across border to mainland China and offshore, many operational functions including sales, design, and marketing, remain in Hong Kong. The flatted and older factories buildings provide a room for SME having roots in Hong Kong’s heritage as a trading centre. A squeeze on space in these buildings is going to drive up rents and cost too much for these SMEs in an challenging business environment. These buildings cheap rents and large spaces, many of these old factories have been transformed into art and music studios by local musicians, artists and creative entrepreneurs looking for room to create.

We are seeing the great emphasis was placed on the rezoning of existing industrial space or industrial land for residential use but not solid planning to increase residential supply as a means to ease price growth.

Instead of one-off, industrial-to-residential projects with a little home flats created, an alternative focus would be to encourage the fast-tracking of lease modification processes to enable a more wide-ranging use of appropriate industrial sites that may still be held on restrictive land leases or are agricultural in nature.

In areas where the prevailing industrial uses are very light or mostly for offices, technology firms or creative industries, mixing industrial activity with residential use could be considered and may be an option, rather than simply pushing for total redevelopment. This has already happened in places like Kuwn Tong and San Po Kong where there are more than just a few “residents” in these industrial buildings enjoying the large floor plates, cheaper rents or purchase cost, and often impressive views.

Moreover, improved control of future industrial developments, such as logistics and data centre, will encourage better infrastructure planning to ensure they are quarantined and are not encroached by non-compatible residential and alternative uses. Land close to existing and planned cross-border zones and marine hubs such as the River Trade Terminal should be considered seriously for such projects.

While the final impact on the residential market may be unclear, what is certain is that it further reduces the supply of industrial space in a market already close to full occupancy. It is our view that government needs to increase the supply of industrial land for logistics, warehousing, and light industrial activity, rather than eating away at the current provisions.