June 17, 2014, Beijing – CBRE has launched its first Shaping Trends in Logistics report. These reports examine the trends acting as the key agents of change in the Asia Pacific logistics markets. The most recent report focuses on the trends behind the strong underlying demand for logistics space, and expected positive rental growth for Asia Pacific’s logistic warehouses. The launch coincides with the launch of another CBRE report, The Next Frontier—the Transforming China Logistics Market in the E-tailing Era.
Against the backdrop of clearer global economic recovery and APAC’s relatively higher growth, there are three key trends underpinning the outlook for demand which are: (1) increasing expansion of organized retail; (2) growing online user bases and sales volumes of e-commerce across APAC; and (3) expanding presence of 3PLs.
“Logistics warehouse markets sit atop fundamental and far-reaching structural trends, such as rapidly urbanizing cities, emerging consumer bases and evolving trade hubs that are shaping the economies of the Asia-Pacific region. Against the backdrop of an improving macro outlook, these fundamental trends will emerge in the form of expansion of organized retail, growth of e-commerce and the increasing prominence of 3PL companies, forming a solid demand outlook for the APAC region,” said Jonathan Hsu, Director, Asia Pacific Research at CBRE.
Whilst overall supply will increase by 80% year-on-year in 2014, low vacancy and strong demand will help offset the impact of increased new completions. As such, CBRE expects overall rental growth in CBRE’s APAC Logistics Index of 3% to 4% year-on-year in 2014, led by Hong Kong at 7.5% year-on-year, followed by Tokyo, Shanghai, and Guangzhou at 4% year-on-year. Rental growth in Singapore, Beijing, and Sydney, will lag other APAC markets with rental growth expected to stay between of zero and 1% year-on-year for 2014.
Key Factors Driving Demand in the Asia Pacific Logistic Warehouse Sector
Expansion of organized retail:
Private consumption is on the increase and there are growing middle-class populations in many countries in APAC. This is driving a continued trend for the development of well-organized shopping malls to support retailer expansion in APAC, including the build-out of store networks and the set-up of supply chains. This is especially true in under-represented developing markets such as China, India, and Southeast Asia.
APAC will have an extra 307 million urban residents in 2020, which will have a significant impact. Looking forward, CBRE sees China as the key growth market in APAC, since it has the most compelling prospects for urbanized market growth over the next ten years and strong potential for development in lower-tier cities. Other markets have significant potential. For example, organized retail accounts for 2% and 4% of total retail in India and Vietnam, respectively, compared with 84% in the United States, although government regulations could limit growth.
Continued growth of e-commerce:
E-commerce has been a relatively recent success story in APAC but the outlook is very positive. Growth in e-commerce sector revenues across the whole region is largely based on structural factors, including the supply-side expansion of online retail firms and establishment of online payment functions. That said, e-commerce has massive appeal to both consumers and retailers. For consumers, the opportunity to instantly compare prices and quickly receive orders is paramount, while for retailers, the ability to reach a wide audience without the need to invest in a range of chain stores is a key draw. Operational success rests upon inventory management and rapid delivery, requiring well-stocked and well-located logistic facilities.
China and Japan, the largest markets by sales turnover, have seen a marked increase in modern logistics facilities, while potentially high-growth emerging markets such as India and Southeast Asia remain undersupplied.
Looking at fundamentals, online user bases are expected to increase drastically in the coming years, with an estimated 346 million extra online users in the APAC region by 2020. Between 2013 and 2020, the largest percentage increases in user bases are expected in India (59.4% or 101 million new users) and Indonesia (56.3% or 22.3 million), while China is expected to add 156 million new users in the same time period. However, despite the optimistic growth numbers, operating conditions vary quite distinctly across APAC, which may affect the impact on warehouse markets from e-commerce sector occupiers.
More dependency on third-party logistics (3PL):
With rising demand for organized retail and growth of e-commerce, demand from 3PL providers will also rise. The need for delivery efficiency, inventory management, and freight-forwarding is driving the need for experienced logistics operators in the region, leading to greater outsourcing to logistics service providers.
Traditionally in APAC, companies across a wide variety of sectors handled their product logistics in-house, preferring to own their own warehouses and keep control of their delivery and coordination functions. As business process outsourcing has taken hold in recent years, companies have looked to 3PLs to provide logistics and delivery services, thus allowing them to concentrate on their core business functions and free up capital by divesting their warehouse investments.
CBRE sees this occupier group as being prominent in APAC markets in 2014 and recent surveys of 3PL operators confirm a relatively optimistic outlook for the sector. APAC is expected to become globally dominant for 3PL, and will account for US$300 billion or around 45% of 3PL industry revenues by 2015, up from $121 billion (around 20%) in 2007.
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