Research

Logistics in China

China’s shift from an export-led economy to one focused on domestic consumption and the explosive adoption of e-commerce are driving new logistics investment opportunities.

May 27, 2019

The Chinese economy’s massive transformation is creating new opportunities for industrial real estate investors.

The expanding middle class is helping reorient the country from an export-led economy to one that is increasingly driven by domestic consumption. Retail sales have boomed over the past decade, and the expansion of modern retail chains have created greater need for efficient distribution.

“Nowhere is the new consumer culture’s impact on logistics property more apparent than in e-commerce, whose voracious demand for warehouses has fueled much of the sector’s expansion,” says Warner Brown, Director at JLL’s Research Team in Shanghai.

China reached more than 800 million internet users in 2018. E-commerce revenues are expected to reach US$718 million in 2019 and grow to US$1.1 billion by 2023.[1]

Top-ranking B2C e-commerce sites such as JD.com, Cainiao, Vipshop and Netease are massive in their own right. While Alibaba is recognised as the 800-pound gorilla in B2B e-commerce, Alibaba Group also has major B2C and C2C e-commerce platforms such as Tmall and Taobao respectively.

Industrial demand is robust in China’s Tier 1 cities, and several of its central and western cities are also growing quickly.

Strong demand in and around Tier 1 markets

China’s megacities – capital Beijing, financial powerhouse Shanghai in the east, and Guangzhou and Shenzhen in the south – continue to show robust demand for industrial real estate.

Primary drivers of market demand in these markets continue to be retail, e-commerce, manufacturing and third-party logistics firms, or 3PLs (outsourced logistics services providers).

Existing industrial space vacancy rates in the Tier 1 markets remain low, leading to greater renewal activity and relatively few new market deals.

Strict land policies have constrained the supply of new projects in Tier 1 markets even as demand continues to grow. This dynamic has fueled the growth of satellite markets just outside the megacities, where land is easier to acquire and infrastructure is still excellent.

Central and Western China logistics on the rise

China’s logistics network continues to be marked by geographic imbalance, predominantly concentrated in the Yangtze River Delta (YRD) and Pearl River Delta (PRD) regions, as well as around the capital Beijing.

GLP, China’s largest logistics developer, has nearly double the amount of logistics stock in Shanghai than it has in central Chinese cities combined[2] [3]. However, the location of China’s modern warehouse stock is increasingly out of step with the spread of middle-class consumers and online shoppers – groups whose demand for goods help drive demand for distribution facilities.

What factors explain strong market potential in China’s central and western cities?

Location is the key

Central and western cities occupy key nodes in China’s logistics network, connecting developed coastal areas with inland ones. The northern provincial capital of Zhengzhou presents itself as the “central city of the nation, an international integrated transportation hub and logistics center”[4]. Attracted by its hub role, retailers and e-commerce giants (including Alibaba, JD.com, and VIPshop) have established distribution centers in Zhengzhou’s airport area.

In addition, major central cities also serve as the main transportation centers of their own provinces, meaning that outside packages are first transferred to these cities before delivery to the provinces’ lower-tier markets. Supporting province-level distribution demand creates significant requirements for inter-city storage.

What do we expect for the future?

Looking forward, some central cities may face oversupply in the short term as a result from developers’ rising enthusiasm for these promising markets.

“In the longer term, we expect local governments in inland cities to tighten their land policies in a way that we have already observed in Tier 1 markets, which will rein in supply,” observes Brown. “As a result, we expect to see supply spill over into adjacent satellite cities, again echoing ongoing trends around Tier 1 cities.”

There already are early signs of such satellite city networks forming in Ezhou and Xiaogan (near Wuhan) and Xinzheng and Xingyang (near Zhengzhou). 

China’s industrial market is forecast to continue to grow, becoming an increasing important market for industrial portfolios. While there are currently economic headwinds, the longer-term outlook remains very positive. If investors can see through the short-term cyclical volatility, significant opportunity remains in China’s industrial market.

Read JLL’s Logistics: Beyond warehousing to find out why industrial and logistics are the next big thing in Asia Pacific. The whitepaper features in-depth, market-by-market analysis.

1. Statista eCommerce China report, https://www.statista.com/outlook/243/117/ecommerce/china
2. Shanghai, Suzhou and Wuxi assets combined, https://www.glprop.com.cn/our-network/network-detail.html
3. Wuhan, Changsha, Zhengzhou, Ji’nan assets combined, https://www.glprop.com.cn/our-network/network-detail.html
4. Master Plan of Zhengzhou City, 2010-2020, edited in 2017

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