China Industrial Real Estate: Logistics Centers

- CresaPartners

Logistics Centers

The value of logistics-related activities has long been overlooked by the Chinese government, which emphasizes attracting foreign production instead of distribution. Until recently, the government usually gave preference to manufacturing companies and charged more for land for uses it deems non-productive, including logistics.

As WTO increasingly opens up the logistics market in China over the next few years, logistics service providers will have much more freedom and flexibility in their options. With more choices and increased manufacturing in China, demand for modern logistics centers, distribution centers and warehouses, led by the multinational 3rd party logistics providers will increase.

There are 2 important trends over the past few years that have changed the landscape in China of the supply chain and logistics real estate in particular.

Regulations

In accordance with WTO agreements, China is opening up licensing for logistics and related companies in China. The market was previously dominated by large Chinese companies and many foreign companies opted to take care of their own requirements, thereby creating a fragmented market. With the recent regulations, we are seeing the entry and growth of major foreign logistics companies including freight forwarders and 3rd Party Logistics (3PL) companies. This trend is moving the supply chain to a model similar to North American and Europe, where the logistics function is increasingly outsourced to service providers.

Infrastructure

Another major trend has been the development of the Chinese infrastructure to facilitate logistics in China. In addition to the development of the transportation sector, we are seeing more logistics-related real estate being developed and the introduction or expansion of logistics-related zones, including bonded logistics centers.

The opening of the logistics sector in China has attracted a number of overseas logistics park developers and owners including ProLogis, Ascendas and AMB; who are all actively expanding throughout the country. They are developing Western-standard distribution center parks in China with international standard specifications, offering corporate occupiers ideal places to locate.

China has also introduced “bonded logistic centers”, which are classified as either Type A or Type B. They are authorized by China’s Customs and normally located away from logistics zones. Type A centers can be publicly- or privately-operated, offering warehousing and logistics services and one-year storage periods for goods. Type B centers are operated and leased by one company for others to do logistics, and can store goods for two years. Logistics centers focus mainly on storage and distribution; and, to some extent, value-added services.

CresaPartners is an international corporate real estate advisory firm that exclusively represents tenants/space users and specializes in the delivery of fully integrated real estate services. For more information, go to their website at www.cresapartners.com.