According to a new report by CBRE Asia, 2015 looks to see continued demand for modern warehousing and logistics space in most markets in APAC region, driven by the development of organized retail in emerging markets and the strong growth of e-commerce. Rental growth continues to increase but at a slower pace, despite a surge in new supply.
Darren Benson, Executive Director, Head of Industrial & Logistics Brokerage, CBRE Asia, commented, "With strong long-term fundamentals, logistics in APAC will remain a hot sector for investors in 2015 and continue to attract capital, supported by three key drivers: strong industrial production growth on the back of the US economic recovery, growing consumer markets, and the continued development of the e-commerce sector. These themes are inter-related as a robust manufacturing economy leads to rising income levels and rapidly growing consumer markets. This story has already unfolded in China and we expect to see it repeat itself in Southeast Asia and India.
However, there also remains a shortage of quality assets available for sale, and this poses a barrier to entry for many investors. In particular, the trend for e-commerce companies to build their own logistics networks is encouraging logistics developers to acquire land and develop logistics centers, or engage in build-to-suit projects to capture this demand. Forming strategic partnerships with logistics developers will be the major opportunity for investors to enter this sector this year."
Key trends in the APAC industrial and logistics sector for 2015:
Stronger logistic rents on the back of strong demand, particularly in Hong Kong, Osaka and Shanghai. This will come despite a surge in new logistics supply: CBRE Research forecasts new logistics supply in 2015 will be 65.1 million sq. ft.--51% higher than the yearly average between 2010 and 2014.
However, while rents will grow, speculative development of logistics space in select markets, especially in Tokyo, Seoul and Singapore, will cap rental growth. We also see increasing sensitivity among occupiers to burgeoning rental costs in absolute terms, which will also weigh in as a factor capping rental growth.
CBRE forecasts overall logistics rental growth in Asia Pacific of 2.9% in 2015, significantly down from 7.1% in 2011. Hong Kong, Guangzhou, Shenzhen, Shanghai and Osaka will lead rental growth amid the strong demand from retailers, e-commerce firms and 3PLs, combined with the weak supply pipeline.
E-commerce is an important and rapidly growing segment of consumption in Asia Pacific, with business-to-consumer e-commerce revenues expected to double in the region from US$525 million in 2014 to US$1.05 billion in 2017. This growth in e-commerce revenue is having a transformative effect on a number of markets including China, Japan and India as e-commerce firms and retailers focus on shortening delivery times, in turn fuelling the construction of modern logistics facilities in Asia.
"For occupiers, ever more demanding consumers are seeing occupiers rapidly moving towards quicker delivery times in APAC, necessitating the increased use of modern logistics facilities. Given the speed of this change, the demand shift to modern facilities may leave occupiers competing for limited core logistics space. If consumer demand or manufacturing picks up more than expected, major occupiers may be forced into leasing decentralized logistics locations, which could increase costs such as transportation. Occupiers will need to decide their long-term strategy and choose strategic locations wisely. Built-to-suit options may mitigate some operational risk as competition heats up for modern logistics space", said Jonathan Hsu, Director, Research, CBRE Asia Pacific.