2020 was a remarkable year, even for the Asia Pacific logistics market. Pandemic-induced supply chain disruption has led many companies to review and strengthen resilience by diversifying production and sourcing.
Australian cities stand out as the best-served in the region by modern logistics stock, while Japanese markets appear to be the most underserved. Mainland China remains one of the world’s largest consumption markets and key player in the global supply chain. Manufacturing capacity in China is therefore likely to increase further to serve domestic demand. Singapore is also one of the best-served Asian logistics markets due its small modern clusters of new and large supermarkets.
In this series of blogs we look at the current and future trends for the APAC market in Singapore, Japan, China and Korea. We already did Korea, let’s continue with China
Space availability remains tight
Pandemic-induced delays to several new logistics schemes of 2020 have pushed up new supply for 2021 to 94 million sq. ft. in Asian markets, an increase of 26%. The bulk of new supply in 2021 will take place in Greater Tokyo and Greater Seoul. Both cities are reporting strong pre-leasing demand from e-commerce companies.
The limited supply of industrial land remains a challenge in tier I cities of mainland China. As a result of that, occupiers turn their attention to tier II cities in coastal (or more rural) areas. Especially in the central and Western regions of the country, due to major e-commerce platforms.
China focusses on technological advancement
Following several years’ rapid growth, leading logistics companies in China have already invested in technology and innovation such as automation. As a result of that the industry was able to adapt almost immediately during the pandemic. Warehouses with automation and high-frequency distribution are likely to excel in the long term.
For occupiers, the coming year will be great for new leases and expansion as landlords want to fill vacant space. Occupiers will be given the opportunity to upgrade to Grade A warehouses. As a result of that they can improve efficiency or sign longer leases at attractive rates.
Strong growth for domestic market in China
Approximately 15 million square meters of new logistics supply will be delivered in the next three years in China. That is 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.
Nearly 30% of new supply will be in tier I markets, a sizable increase on the 17% 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.
China aims to reduce its total logistics costs as a proportion of GDP from 15% in 2019 to 12% by 2025. Along with the introduction of the dual circulation economic strategy, the central government has prioritized the enhancement of domestic supply chains.
What about the predictions for this year? Asia Pacific logistics rents are expected to rise across all markets in 2021, but there is more.
- Tier I cities in mainland China will edge out Greater Tokyo and Singapore in rental growth.
- E-commerce will continue to drive logistics leasing demand in 2021 as the pandemic accelerates the shift to omnichannel retailing.
- Urban fulfillment centers (f.e. near residential neighborhoods) will continue to attract strong interest.
- Demand for highly specialized cold storage for pharmaceuticals (f.e. vaccines) will reach new highs this year.
- The deployment of robots and automation systems to enhance efficiency will further stimulate demand for warehouse space in 2021.
Asia Pacific Real Estate Market Outlook 2021 – CBRE
Marketview Asia Pacific Q4 – CBRE
New directions in APAC logistics – Colliers
China Market Outlook 2021 – CBRE
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