Logistics properties benefit from online sales in China


Online sales of Alibaba on Single’s Day (November 11th) broke the record again this year, totalling to RMB 168.2 billion, 39% higher than last year’s sales, which is also faster than the y-o-y growth of 32% in 2016. As e-commerce has become increasingly popular in China, demand for logistics properties in the country will remain resilient. A number of large consortiums announced that they will develop or expand their investments in warehouses, implying that they are very optimistic about the outlook of the logistics property market.

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The economic growth of China has gradually transformed into consumption-led, as shown by the continuous increase in retail sales. Retail sales of consumer goods have increased around 10% y-o-y in the first ten months this year. According to the statistics from the China e-business Research Center (CECRC), e-commerce retail sales increased by 34.8% y-o-y in the second quarter this year. Many online retailers are actively expanding the categories of consumer goods, from only selling dry goods previously to selling fresh food now. Besides, they have further penetrated into rural areas and are expanding their markets there. This results in a strong demand for modern high-quality logistics properties. 

A series of consortiums have invested or expanded their investment in logistics properties. In September, the property division of U.S. investment management giant, Invesco Real Estate, bought a portfolio of core logistics assets in China from e-Shang Redwood (ESR) for over RMB 2 billion. In addition, SF Express has signed various cooperation agreements with GLP, Vanke and Goodman to co-develop logistics properties. Australian-based warehouse builder Logos Property has also closed its third China logistics venture, partnering with a pair of global investment firms to raise up to RMB 5.5 billion for logistics developments across the country. These show that many large consortiums are optimistic about the outlook of the logistics property market.

Supported by the growth in income and the increased propensity to spend as a result of the burgeoning middle-class population, retail sales are expected to continue to grow. Furthermore, penetration of e-commerce in rural areas is increasing, resulting in the persistent growth of online retail sales. Demand for modern warehouses in core areas will remain strong. Therefore, we believe both prices and rents of logistics properties in first-tier cities will continue a solid and upward momentum, with around 1-3% growth in the coming six months.

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