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Why a warehouse is the best real estate investment opportunity in China

​​16 December 2014

Why a warehouse is the best real estate investment opportunity in China


Industrial real estate is China's most promising property investment prospect, according to a new report.

Logistics facilities topped the list of investment and development opportunities for 2015, across all of Asia Pacific, in a survey conducted by the Urban Land Institute and PwC, which formed the basis of the Emerging Trends in Real Estate report.

Despite myriad headlines claiming that China's real estate market is waning, the nation emerged as the clear leader among industrial investors' preferred destinations. The boom in e-commerce sales in recent years is partly responsible for the sectors' rise to prominence.

"We see continued urbanisation and double digit retail sales growth, which is driving the need for quality warehouse space to support the ever buoyant retail sector, particularly e-commerce," says Stuart Ross, Head of Industrial, JLL China.

The demand from the retail sector for high quality, well-placed distribution centres has highlighted chronic shortages in available warehouse stock in China.

Traditionally, China's warehouse facilities have focused on serving export markets. But, as domestic prosperity spreads, demand is growing for modern logistics hubs to support the inland market.

However, the vast majority is too old to serve modern businesses. The China Association of Warehouses and Storage (CAWS) recently estimated that China has about 700 million square metres of warehouse space, but JLL estimates that just 40-50 million sqm of new stock exists in the country.

"Despite rising demand for modern warehouses, local governments tend to limit land allocations to developers as they view other land uses as more beneficial from a job and tax generation perspective, "adds Ross. "This helps to keep available space chronically low, which is good for developers and investors."

But the rewards are not without risk: "The big China risk, which applies to all sectors, lies in the government's ability to maintain low unemployment and, on the regulatory side, new retrospective legislation could be enforced at any time to direct the market. For example, a change in the land use policy could change the investment environment."

While China's most banal buildings may not excite investors, they are proving profitable.

"Whichever way you look at China, 7 per cent GDP growth in the world's second largest economy is outstanding and this continues to attract investors to all sectors but industrial property is increasingly attractive with the supply and demand imbalance."