Property

A bright outlook for logistics facilities in China

Logistics

With the advancement of technology, the place where people purchase goods has been shifting from traditional brick and mortar shops to online platforms. The rise of e-commerce in China has changed the supply chains of the country’s retail industry, and boosted demand for logistics facilities, particularly in first-tier cities.

Driven by e-commerce retailers and third-party logistics companies (3PL), there has been an increased demand for logistics facilities in China. Amid the increasing population of the middle-class, consumption has been going up rapidly. Retail sales of consumer goods has surged by almost 80% over the past five years, from RMB18.72 trillion in 2011 to RMB33.23 trillion in 2016, representing a CAGR (compound annual growth rate) of 12.2%. Online retail sales reached RMB4.19 trillion in 2016, meaning that Chinese shoppers make one-eighth of their retail purchases on the Internet. With the robust growth of online retail sales, demand for logistics facilities from e-commerce retailers will continue to grow.

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Although the demand for logistics properties in China is strong, supply of quality, modern logistics facilities is limited. Most of the existing logistics warehouses are simply converted from dilapidated factories and are not up to international standards. The imbalance of the supply and demand situation impacted the average rent for modern logistics warehouses in first-tier cities to increase in the past few years. The monthly rent in Beijing and Shanghai increased by 0.3% and 2.9% in the past year to around RMB39 per square metre and RMB40 per square metre respectively. Demand is expected to continue to overtake the level of supply. As a result, average rent in first-tier cities will likely maintain its uptrend.

Against the backdrop of growing demand, logistics properties are sought after by several investment funds. A Chinese private equity consortium acquired Singapore-listed Global Logistic Properties (GLP), the largest provider of modern logistics facilities in China, Japan, US and Brazil, for about SG$16 billion in July. GLP runs eight logistics properties in Beijing and 24 in Shanghai. Moreover, Cainiao Network Technology, a logistics subsidiary of Alibaba Group, announced in June that it will cooperate with China Life to set up a logistics warehouse fund of RMB8.5 billion, with the goal of expanding its national network of smart handling and storage facilities.

Under the stable economic growth driven by escalating disposable income and consumption, the outlook of modern logistics facilities in China is positive, especially in first- and second-tier cities. Market players can continue to strengthen their nationwide network of logistics facilities to seize opportunities, by acquiring new land for investment projects and selectively acquiring existing logistics facilities.

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