Logistics
ROBUST DEMAND SEEN FOR APAC LOGISTICS WAREHOUSING AMID SUPPLY SHORTAGES
April 19, 2023
Demand for logistics warehouses across the Asia Pacific is expected to remain "robust" according to Knight Frank, amid supply shortages and the current reshuffling of global supply chains.
In its latest research, The State of Logistics Asia-Pacific: Focus Report 2023, the independent global property consultancy firm which tracks prime logistics rents across 17 key cities said Asia-Pacific's (APAC) logistics industry is "grappling with a severe supply-demand imbalance" due to outdated facilities and rising land prices, resulting from the region's less established logistics fundamentals compared to the West.
It added that outdated facilities in cities such as Singapore, Sydney and Hong Kong SAR are limiting the availability of modern logistics facilities in the region.
Knight-Frank noted that although the regional stock is set to rise by 10.5% in 2023, it remains insufficient to cater to the continuous growth of e-commerce, compounded by construction delays.
According to Knight Frank's estimate, e-commerce demands three times more logistics space than traditional brick-and-mortar retail stores.
"As a result, the APAC region is projected to require 4.2 billion square feet of logistics space by 2027," the independent global property consultancy firm added, noting that, "only 20% of the necessary capacity is currently available."
"This situation is expected to persist, driving rental pressures higher," Knight-Frank said.
To address the shortage, it noted that authorities are establishing logistics hubs in neighbouring cities and provinces, but these are still in the early stages.
Knight-Frank also said landlords and authorities are exploring vertical logistics properties to alleviate demand pressures and stay competitive.
Rental growth of 2%-2.5% in 2023
"Knight Frank’s Asia-Pacific Logistics Highlight H2 2022 report, revealed that the APAC logistics market experienced modest rental growth of 0.6% in the second half of 2022, bringing its year-on-year growth to 2.5%," the report said.
"Looking ahead to 2023, Knight Frank forecasts prime logistics rental growth of between 2% to 2.5%," it added.
Despite the ongoing global structural headwinds, the research suggests that activities are expected to pick up in the second half of 2023, driven by the long-term structural demand drivers.
The global supply chain's bottlenecks and logistical disruptions, rising prices, and the energy crisis, have resulted in a structural shift from just-in-time to just-in-case supply chain reshuffling, leading to the top priority of building supply chain resilience.
In addition, the report said multifaceted demand drivers such as the long-term relevance of e-commerce, the decentralisation of the supply chain as a result of the China Plus One strategy, and the increased emphasis on Environmental, Social, and Governance (ESG) initiatives are prompting innovation and growth in the sector.
"For occupiers, the lack of supply and the reshuffling of global supply chains heightens the importance of evaluating space requirements well in advance of lease expiries. Landlords are likely to more accommodative in the event of a global slowdown and ease in demand, although markets continue to remain robust," said Tim Armstrong, global head of occupier strategy and solutions at Knight-Frank.
"It is also anticipated that many occupiers will explore build-to-suit options to optimise space efficiencies and improve supply chain efficiency and speed to market," he added.
Armstrong noted that by taking these steps, occupiers can position themselves to weather the current market conditions and capitalise on future opportunities.
Supply shortages to persist in 3-5 years
Neil Brookes, global head of capital markets at Knight Frank, for his part, noted that logistics investment volume in 2022 "slowed down due to the rapid increase in borrowing costs and yield compression during the pandemic.
"Despite this, the logistics market remains highly attractive to both institutional investors and HNWI. There are investment opportunities as certain assets approach their five-year refinancing cycle, providing re-pricing opportunities," Brookes added.
"We anticipate that the current structural undersupply situation may persist over the next three to five years, which is likely to contribute to rental and pricing growth in the medium term," he further said.
