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Industrial property market heats up
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INDUSTRIAL real estate, especially logistics properties, has become a hot investment in China in recent years.
Inadequate supply, increasingly robust demand driven by a flourishing online retailing market and the rapid transformation of China’s retail market have made industrial real estate an attractive investment, according to CBRE, a commercial real estate services provider and investment firm.
“The logistics sector has attracted increasing attention from investors, given its attractive yields and solid industry fundamentals,” said Frank Chen, head of CBRE China research. “The robust demand and a tight supply of modern logistics facilities have pushed up logistics rents across the nation, which have recorded growth the last 18 quarters in a row.”
Initially developed to meet the needs of exports and industrial storage, modern logistics facilities in China have been in strong demand from retailers, in particular online retailers and third-party logistics players (3PLs).
Data released by the China Association of Warehouses and Storage showed there were a total of 698 million square meters of commercial warehouses in China as of 2012. The total area of modern logistics space across the country only amounted to 13 million square meters by the end of 2013, according to CBRE data, which was collected from the nation’s top 12 logistics operators.
The e-commerce industry has been growing exponentially over the last decade with a number of online retailers opting to develop their own logistics networks in order to control costs and enhance operating efficiency. Some even open their logistics network to third-parties, enabling them to benefit from the big data collected in the process. However, the increasing barriers of entry, such as limited access to industrial land supply, lack of financial resources or development expertise, suggests only a handful of large-scale online retailers have the capabilities to develop their own logistics facilities. The majority of online retailers, especially small-and-medium-scale operators, have to rely on other logistics networks.
Moreover, the burgeoning e-commerce industry has triggered more traditional retail operators to adopt an omni-channel model, which may lead to a structural change in logistics needs among retailers and create new demand.
Leading e-commerce research house iResearch predicted earlier that China’s online retail sales may reach 4.1 trillion yuan (US$661 billion) by 2017, or a compound annual growth rate of 22 percent.
Specialization and diversification
Meanwhile, a study by Prologis, a US-based industrial real estate developer, found that every additional 1 million euros (US$1.36 million) of e-commerce sales will create additional logistics demand of approximately 72,000 square meters in Europe’s three largest e-commerce markets — the UK, Germany and France. Despite being a C2C dominant market that mainly relies on third-party logistics services — the Europe market is B2C dominant — the continued growth of e-commerce in China and the expanding share of B2C players are expected to result in a substantial increase for warehousing demand in general, according to CBRE.
As international logistics operators have adopted an asset-light strategy for their China operations, these companies have remained one of the key demand drivers for modern logistics facilities. The rapid development of China’s online retailing market has boosted direct demand for standard warehouses from online retailers and driven up demand from domestic 3PLs. Among all the 3PLs, less than truckload (LTL) operators and courier companies have become an increasingly important demand driver for modern logistics facilities.
With the industry growing more rapidly and becoming more mature at the same time, logistics operators will become more specialized and diversified. New types of logistics facilities such as reverse logistics and cold-chain logistics will emerge. Furthermore, barriers among sub-sectors within the 3PLs will gradually subside as LTL operators enter the courier industry and vice versa. For example, Deppon, an LTL-focused operator, just expanded into the courier business in late 2013, while SF Express recently launched LTL services.
In conclusion, CBRE has forecast several industry trends which include:
Logistics developers are more likely to sign master agreements with strategically important tenants to provide logistics facilities at the national level;
The expansion of logistics developers’ footprints will align closely with the development and penetration of online retailers in China;
The increasing difficulty in acquiring land in strategic locations is likely to push international logistics developers to establish strategic alliances with large domestic developers and/or 3PLs which have better access to industrial land;
The modern logistics sector in China will gradually transit from versatility to standardization and built-to-suit.
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