Find out what to expect in the logistics sector in 2021.
The shift from physical to online retail has driven demand for logistics space, and COVID-19 has boosted e-commerce volumes. The expansion in cold chain, new warehouse designs and new infrastructure projects should fuel demand further.
According to Colliers, most APAC markets now favour landlords and rents should pick up in the big Chinese cities in 2021, with 3.0% growth in Shanghai. Higher incentives had made Sydney and Melbourne favour tenants, but with firm demand effective rents should rise 1.0-2.5% this year. The sector’s popularity with investors should also rise further while cap rates for Chinese logistics assets could fall below office cap rates within a few years.
Here’s more from Colliers:
Across APAC, demand for logistics space has been supported by a long-run shift from physical to online retailing. COVID-19 has driven up e-commerce volumes sharply, while expansion in the cold chain sector and new infrastructure developments should boost demand further. Most investors and developers already see logistics warehouses as a core asset class.
With firm demand and limited supply in China’s Tier 1 cities, tenants and owners may have to seek space and opportunities in locations away from the main centres.
Japan stands out as underserved by modern logistics stock, even though the small modern logistics clusters (e.g. Nagareyama/Kashiwa near Tokyo and Ibaraki City near Osaka) offer some of APAC’s largest and most advanced warehouses. The low availability of modern units means investors and developers can apply value-add strategies to older stock. It is increasingly common to demolish and rebuild.
Australia has ample Grade A logistics stock, but it is tightly held and vacancy rates are well below their long-run averages. Investors should be willing to buy a portfolio of assets to achieve scale.
In India, Mumbai and Delhi NCR have vacancy rates of 10-11%, but the other logistics clusters have vacancy of 15-30%. New supply in 2020 is modest in all markets except Delhi NCR.
Singapore is one of the best-served Asian logistics markets, with a per capita Grade A stock on a GFA basis of 0.8 sq metres (versus under 0.2 sq metres in Osaka or South China). As a result, vacancy is 11.7% and we expect modest average annual five-year rent growth of 0.8%.
Demand for cold chain delivery is soaring. Looking ahead, we expect that big purpose-built cold chain warehouses will be built near ports and transport hubs, while renovated cold chain warehouses will be located nearer cities for easy distribution. Occupiers and owners will find opportunities in both types.
Most APAC logistics & industrial markets favour landlords, including the big Chinese and Indian cities, Singapore, Auckland and Taipei.
Aggregate warehouse occupancy across 33 Chinese cities tracked by Colliers fell from 93% at H1 2018 to 85% at H1 2020, reflecting growth in stock not weak demand. Average rent is down about 2% over the past year, since new facilities tend to be further from CBDs. Rent growth has been firmer in the top cities, notably central areas of Beijing and Shanghai.
Rent growth in the big Chinese cities should now pick up as economic acceleration and new, more efficient warehouse designs fuel demand. In Shanghai, we see rents rising 3.0% in 2021.
In Sydney and Melbourne, a rise in incentives had made the logistics market favourable to tenants. Looking ahead, however, prospects for demand seem bright, and we expect growth in effective rents of 1.0-2.5% depending on the market in 2021 after falls of 3.0-5.0% in 2020.
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