May 20, 2014, Shanghai – CBRE Group, the world's leading commercial real estate services and investment firm, today released its latest research “The Next Frontier -The Transforming China Logistics Market In The E-Tailing Era” in China. Industrial Real Estate, especially logistics properties, has become one of the investment hotspots in recent years in China. The flourishing e-tailing market, along with the rapid transformation of China’s retail market have had broad implications for China’s modern logistics facilities market. In this report, we present the current landscape of the China modern logistics sector and discuss the relationship among all key stakeholders. On that basis, we conducted an in-depth analysis on future demand and supply situation. The report is concluded with a discussion on the opportunities and challenges of the China logistics market.
Status quo of china’s modern logistics facilities market
Modern logistics facilities in China were initially developed to meet the needs of exports and industrial storage. In recent years, however, along with the rapid development of domestic retail market and the rise of e-commerce, demand from retailers, in particular e-tailers and 3PLs has become the driving force for modern logistics facilities. According to China Association of Warehouses and Storage, as of 2012, there was a total of 698 million sm commercial warehouses, only a tiny proportion can meet the standard of modern logistics facilities. Based on data CBRE collect from the top 12 logistics operators in China, total modern logistics space in the nation only amounted to 13 million sm by the end of 2013. Frank Chen, Head of CBRE China Research, comments: “The robust demand and a tight supply have pushed up logistics rents across the nation, which recorded growth for the last 18 quarters in a row. The logistics sector has attracted increasing investors’ attention, given its attractive yields and solid industry fundamentals. This is particularly true when compared with the already competitive and congested office and retail markets and the highly-regulated residential market with abundant supply.”
Demand from e-commerce is set to grow further
E-commerce is one of the two major demand drivers for China’s modern logistics facilities. As the industry grows exponentially over the last decade, a number of e-tailers have opted to develop their self-occupied logistics network, as a way to control costs and enhance operating efficiency. Besides self-use, some of these players take a step forward in opening their logistics network to third-parties, enabling these players to benefit from the big data collected in the process. To a certain extent, this will certainly have a negative impact on leasing demand for modern logistics facilities. Having said that, the rapid growth of the e-tailing industry suggests that overall logistics demand is set to remain robust in the foreseeable future. Furthermore, the increasing barriers of entry, such as limited access to industrial land supply, lack of financial resources or development expertise, suggests that only a handful of large-scale e-tailers have the capabilities to develop self-occupied logistics facilities. As a result, the majority of e-tailers, especially those of small-and-medium scales, are purely relying on third party logistics due to the growing barriers to entry. In addition, the burgeoning e-commerce industry has triggered more and more traditional retail operators to adopt an omni-channel model. This will likely to lead a structural change in brisk-and-motor retailers’ logistics needs, resulting in new logistics demand.
According to iResearch, a leading e-commerce research house, China’s e-tailing sales will reach RMB 4.1 trillion by 2017, indicating a CAGR of 22% in the next five years. Based on a study by Prologis, a US-based industrial real estate developer, every additional €1 million of e-commerce sales will create additional logistics demand of approximately 72,000 sm in Europe’s three largest e-commerce markets – the U.K., Germany and France. Despite being a C2C dominant market that mainly rely on 3PLs services rather than the Europe market which is B2C dominant and therefore can generate direct warehousing demand, we believe the continued growth of China’s e-commerce market and the expanding market share of B2C players will likely to result in a substantial increase for warehousing demand in general. For example, VIP Shop, a leading online discount retailer has taken up approximately 300,000-sm warehouse space from GLP from Q2 2011 to Q1 2014, putting it as the third largest tenant of GLP.
Domestic 3PLs to become the new engine of China’s logistics market
As international logistics operators have adopted an asset-light strategy for their China operation, these companies have been one of the key demand drivers for modern logistics facilities. The rapid development of China's e-tailing market has not only increased direct demand for standard warehouses from e-tailers, but also driven up demand from domestic 3PLs which serve the rapid development of the e-commerce industry. Among all the 3PLs, less than truckload (LTL) operators and courier companies, which are primarily engaged by e-tailers in delivering goods, have become an increasingly important demand driver for logistics facilities.
To support a rapidly transforming domestic retail market which is expected to grow at double-digit in the foreseeable future, the China's logistics sector is set to grow rapidly. As the industry becomes more mature, logistics operators will become more specialized and diversified. New types of logistics facilities such as reverse logistics and cold-chain logistics will emerge in modern warehouse market. Furthermore, barriers among sub-sectors within the 3PLs will be gradually subsided as LTL operators enter the courier industry and vice versa. For example, LTL-focused operator, Deppon just expanded into courier business in late 2013, while SF Express commenced their LTL service recently.
China logistics market outlook
Looking ahead, we anticipate that:
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
