Undersupply of Logistics Property Amid Rising E-commerce

Asian Property Review talks with Nicholas Holt, Asia Pacific Head of Research, Knight Frank on the outlook of logistics real estate in Asia.

1. Which countries in Asia are seeing a spike in demand for logistics real estate due to rising E-commerce?

Based on our research (see table below), key markets that have seen strong demand for logistics real estate in recent years were South Korea, China, and India. Note that our data only covers recorded transaction data and does not include end-user development.

Looking forward, a good proxy on which markets will see strong e-commerce related real estate demand would be to look at their projected e-commerce sales volumes; since both are highly correlated. Based on BMI’s research, Table 2 shows the top 5 markets by their 2021 e-commerce sales volume; together they account for 93% of all e-commerce sales in Asia.

2. Is E-commerce the only reason for the rise in demand – are there also other factors at play?

Taking a step back and looking at a more macro picture, the rise of the Asian middle class has and will be a major factor drivIng the rise in logistics real estate demand given the overall consumption increase; all boats rise with the tide.

Let’s take the German luxury car industry as an example. Note that car sales would least likely be impacted by e-commerce given its large ticket sizes. For VW, China now accounts for 39% of its total global car sales. This share is expected to grow further as China’s middle class rises and further shun local marques for their western counterparts; given the idea that west is best for quality. To keep up with the ever growing demand and improve their customer experience, VW will have to actively stock its cars throughout major markets in China – this in turn will lead to greater warehousing space requirements across the country.

3. What is your projection for the outlook of logistics real estate in Asia for 2019?

Referring to point 1 and 2 reasons and the IMF upgrading its Asia Pacific GDP growth forecast by 10bps to 5.6% for 2019 back in April; we remain positive on the outlook for the logistics market in Asia.

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