Any review of the market for industrial premises in Hong Kong cannot be undertaken in isolation of what is happening in the region in that Hong Kong’s role is now largely one of supply chain management and in managing the flows of capital and goods and services around the region. This is evidenced by the fact that 90% of Hong Kong’s economy is now services related.
That said, Hong Kong based companies and those using Hong Kong as the hub for their regional manufacturing and production activities, maintain significant presences in the Special Administrative Region (SAR) handling the soft elements of the logistical challenge such as marketing and promotion, packaging and distribution, customer relations and other front office functions. However, the production and manufacturing takes place in locations where sites and premises are less costly and there is access to an abundant supply of relatively cheap labor, such as the Pearl River Delta (PRD).
In this respect, Hong Kong acts as the gateway to the PRD, the production engine of southern China, where less than 10% of the population produces over half of the country’s total manufactured goods and this unique synergy and twinning works to the benefit of both Hong Kong and the PRD. However, more recently even the PRD has become less competitive in terms of land and labor costs and we are seeing the migration of many of our manufacturing clients either to cheaper locations in Mainland China or even further afield to Vietnam, Cambodia and the Philippines.
The other very significant change is that with a growing middle class in Mainland China, the focus of many of our clients, which originally was export orientated, is now on the domestic market, where we are also seeing the emergence of many very competitive local brands.
Reverting back to Hong Kong, one of the interesting challenges is to what uses to put the 24.5 million square metres of flatted factory/storage space, much of which is now redundant, given the migration of manufacturing activity to the PRD and the Yangtze River Delta. Much of it is over 20 years old and a candidate for redevelopment but the newer stock clearly has a useful life ahead of it, and we are currently engaged in an interesting exercise considering the adaptive re-use of such space.
Hong Kong is one of the most expensive cities in the world, so Government is keen to find a way to unlock this source of supply, much of which is in the urban areas, for office, creative industry, residential, wholesale outlets, galleries, incubation, etc. Safety and fire are key considerations but much of the balance is a question of mindset; however we believe there is demand from those individuals and businesses that are prepared to accept an adapted product in return for a lower rent.
Nicholas Brooke, BBS, JP, FRICS, FHKIS and Margaret (Maggie) Brooke, BSc, FRICS, FHKIS have owned and operated Professional Property Services Ltd., based in Hong Kong, since 1980.