Jones Lang LaSalle report examines undersupply of logistics properties in China and plans for growth
A new report from global real estate firm Jones Lang LaSalle (JLL), entitled “China50: Fifty Real Estate Markets that Matter,” said that while China’s economy is strong, there is a significant under-supply of quality logistics-related real estate space.
in the NewsState of Logistics 2016: Pursue mutual benefit Hänel Storage Systems donates AS/RS unit to Vincennes University Truckers call on Trump for more efficient infrastructure Other Voices: Counting the costs of warehousing IT failure Lead your organization through the driver shortage and over-the-road regulations. More News
A new report from global real estate firm Jones Lang LaSalle (JLL), entitled “China50: Fifty Real Estate Markets that Matter,” said that while China’s economy is strong, there is a significant under-supply of quality logistics-related real estate space. In fact, JLL pointed out that the total amount of logistics real estate stock in China is about the same as there is in Boston, Massachusetts.
But even though current stock is limited, JLL observed that there are exceptional long-term growth prospects in China that can be augmented by improving transportation infrastructure, retail sector expansion, and a shift towards manufacturing inland.
In an interview with LM, Rohan a’Beckett, vice president in JLL’s Ports, Airports and Global Infrastructure team, explained that the under-supply of logistics-related space in China is due to various factors.
“The property market and the ability of international investors’ ability to access real estate assets in China as a whole is still very immature in that is it very new,” he said. “For an institutional investor to invest in things like warehouse assets, the first movement into that market began in 2003, with the first [logistics-relate] buildings being erected in 2004. So when you look at that undersupply…one of the primary drivers is the delay in which institutional grade investors were able to get access into that market.”
Prior to 2003-2004, a’Beckett said there were logistics-related facilities in China, but they were far behind the quality of international grade facilities—efficient warehouses with clear long-term value—as opposed to the previous ones which he said were more on-grade truck docking facilities, with low ceilings and many columns that did not meet operating condition requirements for large logistics players such as DHL or UPS, whom have myriad customers with high demands.
Inland Ho!: Shifting China-based manufacturing activity from coastal regions to inland regions is viewed by JLL as a growth driver.
According to the report, the main reasons for this have mainly to do with a combination of government policy and market forces, with lower transportation costs making accessing inland cities’ cheaper labor more cost competitive. The cities of Chongqing and Chengdu, said JLL, have some of the fastest growth rates in export trade.
‘The incentives to go West, which were spurred by a policy from the Chinese Central Government around 2006-2007, took several years to gain momentum,” said a’Beckett. ‘Now you are starting to see the results and strong achievements of that policy direction. Places like Chongqing and Chengdu have very specific industry clusters that are based there as well as enormous consumer bases. This creates the need for large-scale logistics developments to support these markets.”
What’s more, a’Beckett noted that the push west can be as simple as a 50-mile move from the domestic center of Shanghai slightly inland to Suzhou or Chengdu, among other locations. And these moves are happening up and down the entire eastern seaboard of China.
These moves represent a very clear path, which is based on the price of labor and the willingness of local government incentives to be focused on high value-add operations.
“The typical high-labor volume and low-value add manufacturing is becoming more and more less welcome in some of these prime coastal city economic centers like Shanghai, Beijing, and Shenzen,” said a’Beckett. “Operations are moving more inland to areas where they are more highly sought after while these more developed centers are focusing on high technology and higher service-oriented economies which a more highly-educated labor pool supports.”
As logistics development activity continues to gain traction in China, the report pointed out that a significant amount of investments in transportation infrastructure are underway. Among them are:
-a $1 trillion (RMB) investment into the China highway network covering more than 74,000 kilometers (the U.S. network is 89,400 kilometers), with the expectation that China will top the U.S. in terms of the length of its highway network by 2015 with 9 new expressways running north-south and another 18 running east-west;
-targeted investment in inland waterways, with China having 110,000 kilometers of navigable waterways while China-based river project investment hit $29 billion (RMB) in 2011;
-continued railroad investment driven by coal and petroleum transportation which saw $700 million (RMB) in investment in 201l, but JLL noted that the impact of railroads on China-based logistics have been fairly light to date; and
-China-based air transport, driven by a shift to domestic consumption, with high-value goods also more likely to require air transportation, while the Chinese government plans to increase its number of airports in China from 175 to 220.
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
Subscribe to Modern Materials Handling Magazine!Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!