Logistics property rental set to soar over coming years

Investors and businesses looking to acquire logistics properties should consider land in neighboring cities instead of Shanghai as prices are expected to soar in the coming years, according to a new industry report by Colliers International.

"Due to irm demand and limited land supply, we expect vacancy for prime logistics property in Shanghai to fall and rents to rise in the coming years," said Chen Tiedong, director of Colliers' East China research division.

"Due to the scarcity of vacant areas and land supply in Shanghai and nearby cities, we advise potential tenants and investors to plan for the future and consider logistics land or properties in outlying cities with high accessibility, supportive local policies and competitive rents. We expect the annual rental growth in Shanghai to be between 5 and 7 percent," he added.

According to the report, demand for prime logistics property remained strong last year. Nearly 581,000 square meters of vacant space was occupied in 2017, and overall vacancy rate declined 6.6 percentage points to 6.4 percent by the end of last year.

In terms of logistics property in Shanghai's non-bonded area, strong demand reduced the vacancy rate by 9.1 percentage points year-on-year to 5.8 percent.

The rapid growth of the e-commerce sector and the launch of a variety of online shopping festivals have also generated greater demand for logistics property. In addition, the on-going clampdown on illegally-constructed facilities in Shanghai has resulted in many tenants looking for new high-quality logistics space.

Meanwhile, only 135,000 sq m of prime non-bonded logistics space was available in Shanghai last year, the lowest annual supply since 2008. Strong demand and limited availability has since resulted in a spike in rental prices.

According to the report, the average rent of Shanghai's prime logistics property last year increased by 7.2 percent from 2016 to 1.39 yuan (22 US cents) per sq m per day.

The report forecast that more than 800,000 sq m of non-bonded logistics property will be made available in 2018, with half of the space located in Pudong New Area. Colliers expects the vacancy rate to rise to between 8 and 9 percent, while average rent this year will continue to grow at a rate of up to 7 percent.

Colliers International also expects more than 1.2 million sq m of high quality logistics property to be made available in Shanghai over the next three years, increasing the city's total stock to over 8 million sq m. The city's current stock of prime logistics properties stands at 6.96 million sq m.

Chen pointed out that high-quality logistics properties should continue to enjoy high demand over the next three years.

"The demand will come mainly from third-party logistics companies, large retail enterprises, e-commerce businesses and advanced industrial manufacturing businesses. The market should still favor landlords, and rental rates should continue to increase," he said.

Due to rising rental prices, new restrictions on land use and the demolition of illegal facilities, demand for warehouses in Shanghai has overlowed to surrounding cities such as Taicang, Kunshan in East China's Jiangsu province and Jiaxing in Zhejiang province.

The report added that more than 1 million sq m of new space will be introduced to Kunshan between now and 2019.