CBRE Group, the worlds 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 Chinas retail market have had broad implications for Chinas 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 chinas 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 Chinas 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, Chinas 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 Europes 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 Chinas 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 Chinas 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 Chinas 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 Chinas 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.
gistics developers are more likely to sign master agreement with strategically important tenants to provide logistics facilities at the national level;
he expansion of logistics developers footprints will align closely with the development and penetration of e-tailing in China;
The increasing difficulty in acquiring land banks in strategic locations is likely to push international logistics developers to establish strategic alliance with large domestic developers and/or 3PLs which have better access to industrial land;
The modern logistics sector in China will gradually transit from versatility to standardization and built-to-suit.
Louisa Lou, Head of Industrial and Logistics Services, CBRE China comments that: The maturing LTL market and increasing market shares of large players will further drive 3PLs demand for standard warehouse. According to information obtained by CBRE Research, Best Logistics and Deppon have each taken up approximately 200,000 sm and 300,000 sm warehouse space with GLP since 2013. We believe domestic 3PLs will become an increasingly important driver for modern warehouse facilities in the coming years.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the worlds largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at