China’s e-commerce boom places spotlight on logistics

KUALA LUMPUR: China’s booming e-commerce has ramped up demand for quality logistics facilities, presenting opportunities in the sector, said DTZ China.

“The combination of limited supply of modern facilities and the ongoing growth of e-commerce in China presents global logistics providers with solid underlying fundamentals to support long term investment in the China market,” said the international real estate consultancy in its DTZ China Insight report.

In terms of location, the consultancy advised investors to train their sights on central and western China as well as secondary locations.

There is limited warehouse space in central and western China due to lack of infrastructure, which in turn limits what consumers can buy as this lack of distribution capability prompts retailers to deliver only smaller items to the more remote areas and outsource delivery to local parcel delivery providers.

“With a growing online consumer base in central and western provinces, we see increased demand for warehousing supply in these areas as e-commerce players tap into demand. Ongoing government investment in infrastructure will help improve accessibility.”

DTZ also advised investors to look at secondary locations outside of Tier I markets, where the lack of land has driven up rents.

“We are seeing this trend in the important YRD region, where large e-commerce players such as Amazon China and Dangdang have chosen to locate their large scale warehouses in lower cost regional centres such as Kunshan and Wuxi as opposed to Shanghai. From here, they can still service Shanghai and the rest of the YRD region, aided to some extent by the so-called one-hour economic circle provided by the high-speed rail system.”

“These Tier II markets are receiving strong government support and incentives which help compensate for falling investment yields,” it added.

Investors should also put their money on established or well-connected players as they are better able to acquire suitable land for development of warehouses.

“Tax revenue from warehouse land deals is not as great as that from other industrial uses, which often put local governments off selling land for such use. In light of this, one option is to invest in large players who are already active in the market, such as Global Logistics Properties and Goodman.

“Similarly, for occupiers, leasing from big developers will be easier than going down the built-to-suit/owner-occupation route.”

DTZ also noted that there is a growing demand for smaller centres near cities focused on serving markets there, which will allow quick and efficient delivery of small parcels at irregular intervals.

“These warehouses need to be in close proximity to a skilled labour pool and sited in locations that enable fast delivery, whilst also saving on costs — both shipping and operational. Such warehouses have large potential to grow in the future.”

It added that these warehouses can act as a pick-up point for local markets or as a place where larger shipments can be divided into smaller batches.

“In terms of specification, as storage is no longer the main function, the height of these smaller regional warehouses is no longer a key issue. Access and site density remain very important, and car parking will be essential,” said DTZ.

Old stock in strategic locations should also be redeveloped by major logistics companies, given that 80% of existing stock is considered obsolete, coupled with growing scarcity of land, it added.

This article first appeared in The Edge Financial Daily, on Nov 30, 2012.

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