Chapter 4


Greater China Real Estate Market Outlook 2021

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Along with the introduction of the “dual circulation” economic strategy, the central government has prioritised the enhancement of domestic supply chains. Objectives include strengthening national logistics systems internally and improving regional trade externally. China aims to reduce its total logistics costs as a proportion of GDP from 15% in 2019 to 12% by 2025.

To meet this target, the central government is repositioning key logistics hubs across the country and extending investment and financial support to these locations. In 2020, China added 22 new cities to the existing list of 23 logistics hubs announced in 2019. The National Development and Reform Commission (NDRC) reportedly plans to identify 150 logistics hubs in the next five years.

Authorities are also seeking to improve logistics efficiency through creating multimodal transport systems that involve two or more methods from roads, railways, waterways and air. The establishment of Ezhou Airport in Hubei in 2021-2022, which will be China’s first cargo-only airport, will be a flagship project for air-road multimodal transport. Other cities such as Chengdu, Zhengzhou and Xi’an are encouraging logistics clustering through airport or railway economic zones, while tier I cities are understood to be examining the optimisation of cargo airport facilities.

Externally, to counter the impact of deglobalisation and decoupling, China and 14 other economies signed the Regional Comprehensive Economic Partnership (RCEP) agreement to form an Asia Pacific free trade zone. The RCEP encompasses over 47% of the world’s population, a third of global GDP, and approximately 30% of trade worldwide.

According to the Peterson Institute for International Economics (PIIE), the RCEP will add US$209 billion annually to global GDP, with China, Japan and Korea set to be the main beneficiaries. By eliminating tariffs on at least 92% of goods traded and opening 65% of the service sector, the RCEP will improve the region’s business climate, stabilise regional supply chains, and encourage more cross-border trade, investment and people flows.

With both internal and external drivers propelling China’s trade and supply chains, CBRE expects China’s logistics market to enjoy robust growth in the mid-to-long term. An increasing number of logistics companies will benefit from the rising demand for warehouses and improving efficiency.



Following several years’ rapid growth, leading logistics companies have already spent a significant amount of capital on technology and innovation such as automation. This ensured the industry was able to adapt almost immediately during the pandemic.

According to Alibaba data, while the total number of logistics orders on the Double 11 shopping festival in 2020 was more than 33 times that of 2012, the time required to deliver these orders in 2020 was just one-fifth of that in 2012.

Recent years have seen e-commerce giants such as Cainiao and JD Logistics achieve lightening-fast delivery times. This has been achieved through a range of strategies including pre-selling ahead of promotional seasons and storing inventory in warehouses close to city centres: trends expected to benefit city distribution and last-mile warehouses. Warehouses with specifications that meet the needs of automation and high-frequency distribution are likely to outperform in the long term.


Landlords came under pressure in 2020 as new supply peaked and demand was disrupted by the pandemic. Nationwide new supply in the 19 cities tracked by CBRE totalled nearly 5.6 million sq. m., up 32% y-o-y. This pushed up vacancy by 2.1 pps to 14.8% and led to rents falling by 1.4% y-o-y, driven by declines in central and western China.

CBRE expects demand to recover faster than expected in 2021, thanks to the combined effect of structural growth and a cyclical upturn. While another 7 million sq. m. of new supply will come on stream, representing an increase of 30% y-o-y, net absorption is likely to increase by 30-50% y-o-y.

Amid these rapidly shifting market dynamics, logistics landlords and occupiers are recommended to identify new strategies for growth.

Figure 18



Approximately 15 million sq. m. of new logistics supply will be delivered from 2021-2023, a level 10% higher than the level three years ago. However, after taking delays into account, the actual volume of new supply is likely to be the same as that three years ago.

Nearly 30% of new supply will be in tier I markets, a sizable increase on the17% in 2018-2020. Expect for Shenzhen, all other tier I cities will see a stronger development pipeline that will help relieve tight market conditions to some extent.

Many tier II markets that were once oversupplied will see a slowdown in new supply over the next three years. Eight out of fifteen tier II cities will see less supply in the next three years, with just five cities expected to witness the addition of more supply.

CBRE advises landlords to rethink their development and acquisition strategies to align with these supply trends. One option is to target high growth markets with a moderate supply pipeline. Several cities have limited future supply but remain attractive locations for logistics end-users. These include Hangzhou and Wuxi, which in 2020 posted annual net take-up of 500,000 sq. m. and 400,000 sq. m., respectively, ranking first and sixth among 19 cities nationwide.

While tier I and satellite cities will remain a strategic focus for investors and developers, their limited supply of land remains a barrier to market entry. This will require a diverse source of channels for land acquisition. Options include second-hand land, industrial land, land obtained at auction, and various joint venture structures with companies that have idle land resources.

Landlords in highly competitive markets with large upcoming supply are advised to adopt lower-risk market entry strategies, such as by acquiring land in core submarkets and in engaging in build-to-suit, sale leasebacks and preleasing.

Figure 19
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Demand for prime logistics warehouses is gaining momentum. CBRE data for the moving average of total net absorption on a rolling 12-month basis indicates logistics demand has risen above the linear trend line, compared to 2019-2020, when demand was below the linear trend line.

CBRE has identified three main drivers of demand:

  1. Robust growth of structural demand drivers: E-commerce, third-party logistics (3PL), cold storage for pharmaceuticals & healthcare and fresh food, and data centres accounted for 73% of new leases in 2020. These sectors are expected to continue to be the major demand drivers of warehouse leasing activity.
  2. Steady growth of daily consumption drivers: Food and beverage, consumer products, apparel and sportswear, plastics, paper products and packages will display strong demand for logistics as daily consumption continues to pick up.
  3. Cyclical upturn of optional consumption drivers: Electronics and appliances, automotive, and home goods and furnishings have seen steady growth in consumption. Nationwide car sales have achieved double digit growth for multiple months since Q1 2020 and are expected to register growth of more than 15% y-o-y in 2021.

In addition to these drivers, CBRE expects unprecedented logistics upgrading demand to be released in 2021. Prime logistics rents in some cities in mid-west China are now extremely attractive compared to those for lower specification warehouses, spurring upgrading demand from price-sensitive occupiers. CBRE data show that occupied stock in these regions has grown at a CAGR of 24% CAGR over the past five years, compared to a CAGR of 5-18% in the coastal regions. With net take-up forecasted to benefit from this trend in 2021-2022, occupiers are recommended to negotiate more attractive rents and secure longer lease terms.

Figure 20
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While overall rents are expected to return to growth in 2021, markets will diverge. Figure 21 displays three-year accumulative historical and future rental growth (vertical axis) vs the average vacancy rate (horizontal axis). Compared to three years ago, cities are more polarised today, meaning that landlords and occupiers should adjust their expectations and strategies accordingly.

CBRE suggests landlords adopt flexible leasing strategies in balanced or tenant-favoured markets such as Tianjin, Nanjing and Ningbo. With these markets seeing large upcoming supply but steady demand for prime warehouses, landlords targetting growth sectors with flexible leasing strategies are more likely to succeed. Landlords should also stay vigilant for signs of a rental turnaround or acceleration.

For occupiers, the coming year will be an optimal period for new leases and expansion as landlords look to fill vacant space. There will be opportunities for occupiers to upgrade to Grade A warehouses to improve efficiency or sign longer leases at attractive rates.

Occupiers with strong balance sheets are advised to seek self-use development opportunities in strategic cities where local governments are offering logistics land to end-users. Development risk and profits can be shared with experienced developers willing to partner with tenants.

Figure 21