ESR enters Hong Kong logistics market by winning Kwai Chung land bid

ESR enters Hong Kong logistics market by winning Kwai Chung land bid
Artist Impression of the logistics site located in Kwai Chung

ESR has entered the Hong Kong logistics market by winning the Hong Kong government Kwai Chung land bid for HK$5.26 billion ($688 million) to develop its first state-of-the-art cold storage and logistics project in Hong Kong.

In line with the company’s asset light strategy, ESR, through its wholly-owned subsidiary Sunrise Victory Limited, is committed to form a fund with its capital partners to develop and hold the asset.

The 55,245 square-metre site has a maximum Gross Floor Area (GFA) of 138,000 square metres, and a new 50-year lease expiring in 2072.  The site is located at the junction of Mei Ching Road and Container Port Road South, Kwai Chung in the New Territories, commanding a strategic geographic location which is easily accessible by established road networks to Hong Kong’s central business districts, international airport, and the Mainland China border.

Kwai Chung is widely considered to be a prime location for modern logistics with all comparable warehouses in the area.  Taking the Hong Kong government’s land lease terms into consideration and to maximise the allowable GFA, ESR is looking to develop a seven-storey modern logistics facility, consisting of both cold and dry logistics.

Jeffrey Shen and Stuart Gibson, Co-founders and Co-CEOs of ESR, said: “We are delighted to win such a prime land site and it will be our inaugural project to bring ESR’s leading expertise in modern logistics and sustainability to Hong Kong. This new development will fulfil the growing demand for large-scale, cutting-edge logistics space while enabling Hong Kong to reinforce its leading position as a leading logistics hub to the world and to China. We see tremendous potential value-add in the opportunity to tap our innovative design and planning expertise to create an exceptional development. Given ESR’s deep experience in cold storage logistics and the fact that the average age of existing licensed cold storage assets is 32 years old, this property will provide a state-of-the-art facilities for the growing demand for cold storage in Hong Kong. The strategic location of this site also helps to unleash the full potential value of Kwai Chung vicinity and sustain the long-term development of the area by promoting job opportunities and thereby generate economic growth.”

Rui Hua Chang, Group Head of Capital Markets and Investor Relations of ESR, said: “With vacancy rates for Hong Kong’s logistics at just 1.4% as at 2Q 2022 which is the lowest since 4Q2014, ESR is confident that our product in the Hong Kong market will be capturing the high demand of cold storage logistics space. For the next four years, there is virtually no new supply of cold logistics coming to the market, while approximately 1 million square feet of cold storage space is being taken out of the market and being converted into data centres. Furthermore, with limited supply of new modern logistics to cater to growing e-commerce demand in Hong Kong and to serve cross-border requirements to China, rents in Hong Kong continue to be well-supported with a 5% to 10% expected growth for 2022.”

The winning of this land bid is the Group’s second New Economy asset in Hong Kong, following the Hong Kong government’s approval obtained last Friday to convert an existing cold storage site into ESR’s first data centre project in the market – Kwai Chung Data Centre.