Concrete AnalysisLogistics sector sees great potential in China
Modern logistics is becoming increasingly important as China’s logistics market evolves. The past decade saw the birth and rapid development of the logistics industry. However, the supply of logistics property continues to lag behind the rise in demand.
As of the first half of 2015, the total stock of modern logistics facilities of nine major logistics operators in China was only 20 million sq. m., which is equivalent to 0.015 sq. m. per capita.
Tier one cities, especially Shanghai as well as Chengdu, are the top performing markets and the most attractive destinations for investment. In terms of logistics property development, GLP dominates the arena and has significantly shaped the logistics property landscape in China over the past decade.
Given demand for modern logistics facilities is huge, the sector continues to be a hotspot for investors to deploy their capital. In recent months, investors have continued to seek out opportunities to engage in platform-level deals and joint ventures. For example, GAW Capital Partners recently established a joint venture with logistics developer Vailog for the development, acquisition and management of modern warehouses in China. Vanke also announced the creation of a logistics subsidiary in conjunction with Blackstone, while GLP established a logistics fund of US$7 billion in July 2015.
Currently China is shifting towards a more consumption-driven economy, and the country is also aggressively upgrading its manufacturing industry. Market activity in Shanghai shows strong demand for modern logistics facilities. As of Q2 2015, total logistics stock reached 3.75 million sq. m. with a vacancy rate of 9.1 per cent.
Regarding market demand, the sources of demand for prime facilities are becoming increasingly diverse. Rents for logistics facilities’ have risen steadily over the past five years with CAGR of 5.8 per cent. The Shanghai market is also the most active trading market for logistics property transactions in China.
In H2 2015, modern warehouses amounting to over 800,000 sq. m. are expected to be completed. In consideration of the present low rate of vacancy, the arrival of new supply could boost market activity accordingly. Meanwhile, competition will be more intense, and developers will be more willing to offer preferential treatment for tenants.