Undersupply of land and demand from booming e-commerce will steadily drive up the cost of logistics properties on the mainland, pushing warehouses to cheaper locations in the next few years, industry analysts say.
The logistics industry is being promoted as a key plank of the economy under the central government's plans to make trade more efficient. But local governments are wary of turning over land for logistics use, as warehouses are cheaper to build, employ relatively few people and companies often do not pay taxes based on where their goods are stored.
"Relocation costs are rising, further limiting land supply for logistics use," said Peter Zhang, director of industrial consulting at Cushman & Wakefield in Shanghai. "On the demand side, a strong e-commerce market is fuelling demand for distribution centres."
In Beijing, only seven of the 214 land plots sold last year were stated or indicated for logistics use, the South China Morning Post has found.
Short supply drove up land prices for modern logistics properties by 20-30 per cent in some cases in the past two years in Shanghai, Zhang said, citing a plot for logistics use near Pudong International Airport that cost 1,500 yuan to 1,800 yuan per square metre last year, up from 1,050 yuan to 1,200 yuan three years ago.
For rents, logistics properties fetched an average of US$7 per square foot a year in Beijing, the most expensive on the mainland, compared with US$13.90 in Hong Kong, US$17.50 in Singapore and US$20.60 in Greater Tokyo in the third quarter, according to data from global consultancy CBRE.
Zhang predicted logistics rents on the mainland would increase by more than 10 per cent a year in the more competitive areas such as Beijing and Shanghai, but vast underdeveloped land tracts would keep general prices elsewhere in check.
Jason Wang, who heads the industrial property team in Tianjin at global real estate consultancy Jones Lang LaSalle, agrees.
"Demand from domestic consumption-related industries, including auto, consumer goods and furnishing materials, will drive up logistic costs," Wang said. "And it's inevitable that companies will move outside Beijing and Shanghai to cheaper places."
Companies are moving from Beijing to Tianjin, less than an hour by train from the capital, where logistics rents are cheaper by a quarter. After a few years, they will probably move to other vast, less developed areas in Hebei and Liaoning provinces to the north, Wang added.
That explained why most landlords preferred to take on high-quality tenants instead of charging higher rents in Beijing where most modern logistics facilities enjoyed near-full occupancy as of the end of September last year, the CBRE report found.
The stable outlook for the sector, underpinned by surging e-commerce, attracted many foreign investors, particularly sovereign wealth, pension and endowment funds that are happy with an annual investment return of about 10 per cent.
The sector is dominated by foreign players such as GLP, Goodman and Prologis, but domestic firms, including the mainland's No2 life insurer Ping An Insurance and state companies, are also joining in.
Jones Lang LaSalle predicted in a September report that the mainland's e-commerce business would exceed US$1 trillion by 2020, as the world's largest. The value of goods and services purchased online by mainlanders in 2020 will be the equivalent of the world's 16th largest economy, in today's terms.
That scale of growth is evident at GLP, the biggest logistics property operator on the mainland. In the 2010 financial year, e-commerce firms accounted for 4 per cent of the company's total leased area. By March last year, that proportion had risen to 20 per cent. Among GLP's top 10 tenants are e-commerce operators Amazon, Vancl and 360buy. In the same period, GLP's completed portfolio had tripled to 7.6 million square metres.