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China Logistics - July 2020 Savills Research SPOTLIGHT The Greater Bay Area Logistics Index
China Logistics - July 2020
Savills Research
SPOTLIGHTThe Greater Bay Area
Logistics Index
2
The Greater Bay Area Logistics Index
Background
The logistics market has been one of the fastest-growing and more attractive sectors in China’s real estate market over the last decade and remains so given the COVID-19 pandemic in the first half of 2020. The market is supported by stable occupancy rates, steady rental and capital value growth and higher yields than commercial real estate. At the same time the government’s commitment in developing the Greater Bay Area (GBA) through the series of directives and policies, e.g., the Outline Development Plan for the Guangdong-Hong Kong-Macau Greater Bay Area (Outline Plan) also plays an important role in catalysing more demand for the sector as a whole.
Savills has launched the inaugural publication of the Greater Bay Area Logistics Index Report to provide developers, landlords, occupiers and investors with a benchmark to keep abreast of the changes in the logistics market enabling them to refine or adapt business and corporate real estate strategies.
Sampling, Timing & Delimitation
The report covers nine mainland cities and Hong Kong SAR within the GBA with city indices starting from different base years depending on market development stage. The indices for Hong Kong, Shenzhen and Guangzhou start in 2010 while other cities in the study start from 2015 or later.
Grade A Warehouse
Grade A warehouse refers to preferably steel structure warehouses with a clear ceiling height in excess of nine metres and a ground floor loading capacity of at least three tons per sq m; additionally, the project should have a minimum of Class C, Grade II fire-proofing.
Total Occupancy Cost
The total occupancy cost is a lump sum cost of net effective rent, property management fees and related taxes.
Index
The rental and price indices reflect the trends among different cities and indicate the commonalities and divergences of the logistics markets in different cities.
Frequency
The GBA Logistics Index Report was first published in July 2020 and will be updated on a semi-annual basis in order to provide the latest trends on rental and price changes among all the city logistics markets within the GBA.
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INTRODUCTION & GLOSSARY
The Greater Bay Area Logistics Index
GBA logistics rental index increased by 97.5% to 197.5 in the decade to 1H/2020. Over the same period, price index rose by 157.1% to 257.1, underpinned by the rental growth, increasing investor appetite and compressing cap rates.
Total stock of GBA cities (excluding Macau) amounted to 10.8 million sq m by the end of 1H/2020. Hong Kong has the largest market accounting for just over a third of the total, followed by the mainland cities of Foshan, Guangzhou and Dongguan in the next three spots respectively.
Leasing demand for Grade A warehouses in the Guangzhou-Foshan (G-F) and Shenzhen-Dongguan-Huizhou (S-G-H) clusters was particularly strong. Demand primarily came from 3PLs, e-commerce and some leading retailers, in line with many other logistics hubs and clusters in the other parts of the country. Overall, the average vacancy rate of the GBA Grade A warehouse market by far was the lowest compared with other regions of China, resting at approximately 9.5% as of end-1H/2020.
Hong Kong’s total occupancy cost amounted to RMB135.5 psm pmth by the end of 1H/2020, which was 2.4 and 3.4 times higher than that of Shenzhen (RMB57.0 psm pmth) and Guangzhou (RMB39.6 psm pmth), respectively. Zhaoqing was the most affordable market in the GBA with the total occupancy cost having fallen by 12.1% HoH in 1H/2020 to RMB23.1 psm pmth.
The GBA logistics rental growth slowed in the first half of 2020, with eight out of ten monitored cities entering the late upswing phase of their market cycles. While several landlords temporarily adjusted rents in response to the COVID-19 situation, demand remains strong in the mid- to long-term as occupiers look to service the growing economic and industrial development of the region and the expanding consumer market.
KEY FINDINGS
The Greater Bay Area Logistics Index
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The Greater Bay Area Logistics Index
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GBA Logistics Rental Index, 1H/2010-1H/2020
GBA Logistics Price Index, 1H/2010-1H/2020
Note: Data of Hong Kong was updated to Q1/2020.
Source: Savills Research
Note: Data of Hong Kong was updated to Q1/2020.
Source: Savills Research
The Greater Bay Area
The Greater Bay Area
Zhaoqing
Zhaoqing
Foshan
Foshan
Zhongshan
Zhongshan
Jiangmen
Jiangmen
Dongguan
Dongguan
Zhuhai
Zhuhai
Hong Kong
Hong Kong
Huizhou
Huizhou
1H/2
010
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100
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100
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140
220
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300
240
2011
2011
2017
2017
2014
2014
2010
2010
2016
2016
2013
2013
2019
2019
2020
2020
2012
2012
2018
2018
2015
2015
1H
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Guangzhou
Guangzhou
Shenzhen
Shenzhen
THE GREATER BAY AREALOGISTICS INDEX
The Greater Bay Area Logistics Index
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GBA logistics rental index increased by 97.5% to 197.5 in the decade to 1H/2020, the fastest growing market over that period was Hong Kong which saw rents increase by 108.9% to 208.9. Shenzhen and Guangzhou then followed with growth of 68.7% and 65.4% to 168.7 and 164.5, respectively. Over the last five years to 1H/2020, Foshan, Dongguan and Huizhou all saw their rental index increase by more than 15.0%.
Reinforced by resilient rental growth, the GBA logistics price also showed an upward trend, with its price index increasing by 157.1% to 257.1 in the ten years to 1H/2020. While Hong Kong’s price index fell by 5.2% YoY to 301.7 during 1H/2020, the city still recorded the largest increase during the past decade among all GBA cities. Shenzhen was the second-best performer seeing price index increase by 120.0% to 220.0 over the same period, while price index in Guangzhou increased by 117.9% to 217.9.
The Greater Bay Area Logistics Index
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SUPPLY AND DEMAND
Note: Data of Hong Kong was updated to Q1/2020.
Source: Savills Research
Grade A Warehouse Stock & Vacancy Rate, 1H/2020
Total stock of GBA cities (excluding Macau) amounted to 10.8 million sq m by the end of 1H/2020. Hong Kong has the largest market accounting for just over a third of the total. The three largest mainland GBA city markets of Foshan, Guangzhou and Dongguan have a combined total stock of 5.3 million sq m accounting for almost half of the total GBA stock.
While the majority of Hong Kong’s warehouses are multi-storey given the scarce land resources, 51% (3.4 million sq m) of the mainland GBA stock are single-storey warehouses and typically no more than three storeys while those in Hong Kong can be as many as ten storeys.
GBA Grade A warehouse vacancy rates increased to 9.5% by 1H/2020 as new supply took longer to lease up as several projects were situated further away from key transportation networks. Indeed, several new completions with lower commitment rates pushed the G-F cluster vacancy rates to 16.0%, by comparison the S-G-H cluster recorded vacancy rates under 7.0%.
While warehouses are typically available for letting on a unit basis, most warehouses are occupied by only one or two tenants as opposed to the multi-tenant structure of most commercial developments. As such, vacancy rates for warehouses could be volatile during the leasing expiry and tenant change periods, which could be short when the market was hot, and vice versa.
The Guangzhou-Foshan Cluster
Guangzhou is a traditional international business and industry centre as well as an integrated transportation hub, whose freight traffic volume and cargo throughput was the highest in 2019 amongst all GBA cities. Huangpu is one of the major warehouse markets in Guangzhou, receiving sustained growth in leasing demand from 3PLs and retailers. Whiles the existing Grade A warehouses were almost fully let, many of the existing warehouses are too old and their specifications may not be able to meet tenants’ increasing requirements on quality. As such, some demand is beginning to spill over to neighbouring districts’ newer, under-construction properties during 1H/2020. Guangzhou Grade A warehouse stock totalled 1.8 million sq m in 1H/2020 with a vacancy rate of 15.0%.
Foshan Grade A warehouse stock totalled 1.9 million sq m in 1H/2020, making it the largest of the nine mainland GBA cities. Taking advantage of its close proximity and strong ties to Guangzhou, Foshan attracted a growing number of leading e-commerce companies, such as JD.com, as well as retailers such as Lotus, Mannings and 7-11, to set up their storage & distribution centres in the areas close to Guangzhou, such as Nanhai and Shunde districts, to cover delivery services to Guangzhou. Leasing demand of the aforementioned areas remained strong during the 1H/2020 though projects in the west of city found the COVID-19 period more challenging. The citywide vacancy rate increased by 1.8 ppts in 1H/2020 to 17.0%.
Guangzhou Foshan
0
100 16%
200 32%
300 48%
50 8%
0%
150 24%
250 40%
350 56%
400 64%
Mill
ion
sq
m
Hong Kong Foshan Guangzhou ZhuhaiJiangmenShenzhenHuizhouDongguan Zhongshan Zhaoqing
Existing Stock (LHS) Vacancy Rate (RHS)
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The Shenzhen-Dongguan-Huizhou Cluster
Zhuhai
The Zhongshan, Jiangmen & Zhaoqing Cluster
Smaller population and market size, and close proximity to Macau are the best descriptors for Zhuhai’s economic, demographic and geographic conditions. Its consumer market relies on the tourism industry and a migratory population. Zhuhai’s Grade A warehouse stock totalled just 22,000 sq m by 1H/2020 with a vacancy rate of 18.2%. The Hong Kong–Zhuhai–Macau Bridge has not generated immediate boost to demand that was hoped following its completion.
Shenzhen
Shenzhen’s consumer market grew rapidly over the last decade, with retail sales CAGR reaching 8.2%. Online sales in particular saw its growth accelerate to 41.4% in 2019, 16.9 ppts higher than in 2018. The rapid growth in general consumption and e-commerce stimulated warehouse demand from e-commerce platforms and 3PLs. Several landlords have converted their bonded warehouses into non-bonded ones in recent years, though the supply of non-bonded Grade A warehouse still only stands at 490,000 sq m, woefully inadequate to accommodate the growing demand. A lot of demand has therefore spilled over to neighbouring cities, such as Huizhou and Dongguan. The citywide vacancy rate stood at 5.7% by 1H/2020.
Dongguan
Supported by its five pillar industries, especially high-tech manufacturing, approximately 48.1% of the leasing demand in Dongguan comes from companies such as Huawei and Gree. Nevertheless, the city’s close proximity to Guangzhou, Shenzhen and Huizhou means that it is also popular with 3PLs companies like SF, Deppon and Best Express. Dongguan Grade A warehouse stock totalled 1.5 million sq m in 1H/2020 with a vacancy rate of 6.6%.
Huizhou
Similar to Nanhai and Shunde districts in Foshan, Huizhou’s warehouse market benefited from the spill over demand from Shenzhen. The demand primarily came from the e-commerce sector, though 3PLs also emerged as the market continued to develop. The citywide Grade A warehouse stock totalled 760,000 sq m in 1H/2020 with a vacancy rate of 5.4%.
Zhongshan
Partly owing to its small size, with Grade A warehouse stock of just 234,000 sq m the Zhongshan Grade A warehouse market was fully let by the end of 1H/2020. 3PLs and several e-commerce companies were the major tenants. While some international developers/investors have a presence in Zhongshan, local developers continue to dominate the market with their compelling stock. However, it should be envisaged that building specifications of the supply developed by local market players still have room to improve and can be marginally categorised into the Grade A warehouses.
Jiangmen
Jiangmen has just 125,000 sq m of lettable warehouse space by the end of 1H/2020, the second smallest market in the GBA. Major tenants were mostly 3PLs. It should be noted that as a negative impact of the COVID-19 pandemic, new prospective tenants had to withdraw their Tenancy Agreements to keep their corporate cashflow running during 1H/2020. The citywide vacancy rate therefore increased significantly and stood at 47.0% by the end of 1H/2020.
Zhaoqing
Zhaoqing’s economy was the smallest of the GBA cities, with the local GDP totalling RMB42.5 billion in Q1/2020 — equivalent to approximately 7.4% and 8.1% of Shenzhen and Guangzhou’s GDPs, demand for warehousing is therefore rather limited while the two-hour drive time to Guangzhou means that the market receives relatively limited spill over demand from other cities. Already struggling, the COVID-19 outbreak pushed up the city’s vacancy rate to 55.5% by the end of 1H/2020 while citywide stock stood at 152,000 sq m.
Zhuhai
The Greater Bay Area Logistics Index
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Note: Data of Hong Kong was updated to Q1/2020.
Source: Savills Research
Total occupancy cost, 1H/2020
Standard market practices regarding rent and property management fee collections have not yet been established and while most landlords quote a headline price that includes both rent and management fees, other landlords still quote rent and management fees separately.
Limited supply and strong leasing demand made Shenzhen and Guangzhou the top two cities in occupancy cost of all mainland GBA cities, reaching RMB57.0 psm pmth and RMB39.6 psm pmth, respectively, by the end of 1H/2020. These were 2.5 and 1.7 times higher than that of Zhaoqing, in which total occupancy cost was the lowest among all GBA cities.
Given a greater number of international and domestic market leaders, established operation mechanisms, property operations and management, Dongguan, Foshan and Huizhou all enjoyed growing demand from Guangzhou and Shenzhen. As of 1H/2020, total occupancy cost of all these cities were over RMB30 psm pmth.
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0 8040 12020 10060 140
RMB psm pmth
OCCUPANCY COST
Hong Kong
Foshan
Guangzhou
Zhuhai
Jiangmen
Shenzhen
Huizhou
Dongguan
Zhongshan
Zhaoqing
The Greater Bay Area Logistics Index
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By the end of 1H/2020, the total occupancy cost of Hong Kong was RMB135.5 psm pmth, and the gap between Hong Kong and mainland cities continued to widen, with Hong Kong being 1.8 times higher than Shenzhen in 2010 and 2.4 times higher in 1H/2020.
The originally weaker demand and the COVID-19 pandemic affected almost all landlords in the Zhaoqing market, pushing them to lower their rents in exchange for higher occupancy. Consequently, the total occupancy cost of Zhaoqing decreased by 12.1% HoH to RMB23.1 psm pmth during 1H/2020.
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Note: Data of Hong Kong was updated to Q1/2020.
Source: Savills Research
Total occupancy cost change HoH, 1H/2020
0%-2% 2% 4%-6%-12% -4%-10% -8%-14%
Total occupancy cost, 1H/2010-1H/2020
Note: Data of Hong Kong was updated to Q1/2020.
Source: Savills Research
RM
B p
sm p
mth
1H
20
120
70
170
2011 201720142010 20162013 2019 20202012 20182015
1H 1H1H 1H 1H 1H1H 1H 1H 1H2H 2H 2H2H 2H 2H 2H2H 2H 2H
Hong Kong
Foshan
Guangzhou
Zhuhai
Jiangmen
Shenzhen
Huizhou
Dongguan
Zhongshan
Zhaoqing
Zhaoqing
Foshan
Zhongshan Jiangmen
Dongguan
Zhuhai
Hong Kong
Huizhou
GuangzhouShenzhen
10
MARKET CYCLE
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Eight out of ten monitored cities were in late upswing market cycle in 1H/2020, with rental growth slowing in response to economic conditions.
Hong Kong and Zhaoqing were the two exceptions, entering the early downswing market cycle, with the former primarily caused by social unrest and the latter influenced by its lack of local demand and distance to other neighbouring cities. While Hong Kong rental index increased in 1H/2020 this was primarily a result of exchange rate fluctuations, with rents in local currency declining.
Late upswing Early Downswing
GBA Grade A Warehouse Market Cycle, 1H/2020
Guangzhou
Shenzhen
Dongguan
Foshan
Huizhou
Zhongshan
Jiangmen
Zhuhai
Hong Kong
Zhaoqing
LATEUPSWING
LATEDOWNSWING
EARLYDOWNSWING
EARLYUPSWING
Source: Savills Research
The Greater Bay Area Logistics Index
The Greater Bay Area Logistics Index
GBA Grade A warehouse leasing demand has far outstripped supply. Grade A warehouse space per capita stands at just 0.14 sq m by the end of 1H/2020, less than 2.0% of developed countries*, such as the United States. While stock is expected to grow from 10.8 million sq m to 13.5 million sq m by the end of 2022, this is still not expected to be enough to accommodate growing demand generated by the regional economic development plans, the Outline Plan and continuing growth in consumption.
While COVID-19 has had and is continuing to have a devastating impact of society, the economy and the global property market, including the GBA, the impact on the logistics sector seems to be more muted. The latest government data indicates that manufacturing activity in the GBA has almost recovered to pre-COVID levels whilst the shortfall in retail sales has narrowed, this should give some support to the G-F and S-G-H clusters in 2H/2020.
The completion of the Hong Kong-Zhuhai-Macau Bridge strengthened the transportation integration of the three cities and the region. Meanwhile, the Shenzhen-Zhongshan Bridge, connecting east and west Guangdong, is expected to come into operation in 2024. At that time, the connectivity of transportation links within the GBA region could be further strengthened. While these infrastructure improvements will no doubt benefit the logistics market in the long run, the immediate benefits are less certain as the cost of transportation and relocation are also the key financial indicators market players should consider. Jiangmen is a particular bright spot for the GBA logistics market as the local government has been planning and building the Pearl River West Logistics Centre since 2016 and after the announcement of the Outline Plan, the city was able to attract a number of international developers, such as GLP, Vailog and Prologis, to establish/expand their presence. Additionally, with rail links to Yantian (Shenzhen), Nansha (Guangzhou) and Gaolan (Zhuhai) ports being established as planned, the prospects for the west Guangdong Grade A warehouse market is anticipated to be strong.
Carlby Xie 谢靖宇Head of Research, Southern China
市场研究部主管，华南区
Tel: 86 20 3665 4874
E-mail: [email protected]
Gandi Gong 龚勇高Head of Business Park & Industrial Services, Shenzhen
产业地产部主管, 深圳
Tel: 86 755 8436 7048
E-mail: [email protected]
Contact Us
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SUMMARY
The Greater Bay Area Logistics Index
* Source: Journal of Real Estate Portfolio Management
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