New | Logistics: e-commerce powering a tailwind in China

China’s commercial property market, and the service industries driving much of the demand to occupy it, afford a valuable perspective on structural changes in China’s broader economy, as the country transitions from its hyper-growth phase to a more sustainable, services-led model.

Logistics, for example, has seen a big buildup in stock in recent years. A World Bank report cites average annual growth of 24 per cent for the period 2006 to 2012. Multiple sources of demand, including the burgeoning retail industry and the manufacturers that sell through it, and auto parts makers serving the world’s largest car market, have attracted a wave of capital to the sector, producing pockets of oversupply in cities such as Tianjin and Chengdu.

Yet the country as a whole is still considerably undersupplied. Even in an age of lower GDP growth, existing drivers of demand – with a strong boost from a newer one, e-commerce – are likely to soak up the oversupply and fuel further growth. In a more competitive market, however, not all space is equal. Larger and more sophisticated facilities are now favoured, and a process of consolidation and upgrading is under way.

LOGISTICS IN TRANSITION

China’s logistics market took its first step into the modern era in 2004, when GLP, the Singapore-based logistics facilities giant and a former division of US-based Prologis, entered the market. Still the largest player, GLP in July announced the establishment of a second China fund, this one totalling US$3.7 billion. But the sector has been shaped by factors unique to China.

Chief among these are China’s land-use dynamics. Local governments have historically been loath to make industrial land available for warehouses because factories and business parks (low-rise offices) generate more tax revenues. This is now changing in some cities. Dalian, for example, is aiming to capitalise on its deepwater port, and looks to logistics as the service sector industry likeliest to balance out its historic reliance on manufacturing.