The e-commerce industry, especially in China, is showing no signs of slowing down; quite the opposite in fact.

A revenue forecast by places e-commerce revenue at US$1.086 billion by 2023, a massive jump from the 2019 projection of US$740.42 million. However, goods being sold through e-commerce channels must be housed somewhere, and this has, in turn, changed the outlook of the warehouse real estate industry in China.

Supply and demand for space have yet to reach an equilibrium and will prove more difficult as the industry continues to balloon. Richard Huang, head of logistics at JLL China, a global real estate firm specialising in commercial property, said there is a need for more warehousing and distribution space. “Overall, there is still a big gap between the potential demand for Grade A warehouses and current stock in the market. Not only for e-commerce, but also traditional retailers are aggressively upgrading their supply chain, including the warehouse,” Huang explained.

According to a report released by DBS Group in May 2017, warehouse construction grew rapidly from 2012–2015 due to the e-commerce jump. Several companies invested in China’s logistics real estate market during that time. However, the renminbi (RMB) began to depreciate, and investments in the warehouse sector also declined, the DBS Group reported.

The logistics real estate market has since rebounded. In Q3 2018, new warehouse supply in major cities grew to 1.19 million sqm, according to a CBRE report. The majority, 75%, are located in tier 1 cities, which are Beijing, Shanghai, Guangzhou and Shenzhen. Most tenants had large-size warehouse needs reaching a total of 727,000 sqm in the tier 1 cities.

As is the case when making any real estate purchase, location is crucial. “For developers and investors, gaining access to land resources with a good location is still the key to catch up with the pace quickly. Also, more analysis should be done to understand occupiers’ specific requirements. How to cope with key drivers of targeted tenants will become a differentiator in the market,” Huang said.

Just across the border of Mainland China, land-scarce Hong Kong will be the new site of a warehouse with new technology, including robots used for receiving, sorting and storing goods, according to a recent South China Morning Post (SCMP) article. Goodman, an Australian-based logistics property developer, won a bid to build the modern 31,667 sqm complex. The four-storey site will have a gross floor area of 79,153 sqm, the SCMP article stated. The idea of the uncommonly low-rise building in a city of high rises is to provide more efficient operations and delivery given automation and robots will be used in the warehouse, according to the article.

As the popularity of e-commerce increases, the need for warehouse and distribution space will continue, and real estate prices will likely be affected. “A 4-6% yearly increase on warehouse rental [fees] in tier 1 cities or satellite cities is quite common,” Huang said. Looking to the future, the market will be manageable; “aiming to middle and long-term plans, the market risk is quite controllable,” explained Huang. “Given governments are still the controller for industrial logistics land supply, it is becoming more and more critical to meet the government requests and desires.”