Hong Kong 0.8m sqm short of modern logistics space: Knight Frank

Demand for this space is expected to hit 3.1m sqm by 2025, and Hong Kong only has 2.3m sqm currently.

Knight Frank defines modern logistics as the physical integration of materials handling, production, storage and transportation. It also includes higher-level nonphysical and commercial business functions, such as shipment tracking, management services, product maintenance, integrated packaging solutions, and just-in-time (JIT) activities, like correct language labelling and end-market regulations. These value-added services are normally undertaken by third-party logistics (3PL) providers, which require a large floor area to work efficiently and allow economies of scale. 

Modern logistics buildings have higher requirements for building specifications. For instance, Knight Frank says all floors in a modern logistics building must have direct vehicular access, but general industrial buildings do not have this. This has made it a technical challenge to convert older general industrial buildings into modern logistics buildings. But there is strong demand for modern logistics space worldwide because of its higher value in the industrial supply chain over traditional industrial space and the wider application of e-commerce in recent years. 

Here’s more from Knight Frank:

The COVID pandemic instantly changed consumer behaviour in Hong Kong, as it has worldwide, especially regarding the stay-at-home economy and online shopping because of travel restrictions and anti-epidemic social-distancing rules. According to the Hong Kong Census and Statistics Department and Statista, the overall Hong Kong e-commerce market has seen strong growth, with revenue potentially reaching HK$87.6 billion by 2025, for an annual growth rate of 10.5%. The current e-commerce penetration rate in Hong Kong is estimated to be 73.1%, corresponding to about 5.5 million e-shoppers, and it is expected to hit 83.8%, or 6.5 million e-shoppers, by 2025. With the ever-increasing application of e-commerce, demand for modern logistics will inevitably continue to rise at a rapid rate. 

There is currently about 2.3 million sqm of modern logistics space in Hong Kong. With the COVID situation driving demand from the wider application of e-commerce, total demand for modern logistics space could be up to 3.1 million sqm by 2025, so another 0.8 million sqm will be needed to fill the supply gap in the next four to five years.