Leading independent global real estate adviser Knight Frank has released its Asia-Pacific Logistics Markets report for H1 2023, which highlights the sustained growth of logistics real estate in the region.
The report, which tracked prime logistics rent across 17 key cities across APAC, showed an average rise of 10.4% year-on-year, powered by the acceleration of rental growth in Manila.
This growth defies the significant economic challenges that prevailed during the same period. The overall rise is largely fuelled by resilient demand from e-commerce, third-party logistics (3PL) entities and manufacturers, despite flagging GDP growth in the Chinese mainland and an uncertain global economic forecast.
Key Highlights of the Asia-Pacific Logistics Markets Report H1 2023 cited that most SEA cities tracked recorded stable or improved rents, with Manila recording the highest rental growth year-on-year in Asia-Pacific, fuelled by sustained demand from e-commerce.
With the huge volume of supply expected in the Chinese mainland, rents in Beijing and Shanghai are expected to soften in tandem with rising vacancy rates for the rest of 2023.
Jakarta is the only market to defy the broader regional trend with falling rents. However, near-term momentum indicated a slight slowdown. Half-yearly rental growth decreased by 4.8%, compared with 5.3% six months ago, highlighting a nuanced shift in Jakarta’s rental market dynamics.
As e-commerce demand normalises, the focus on optimising the sector’s logistics footprint has driven demand for modern facilities. Preference for institutional-grade facilities in core areas and last- mile locations continue to fuel leasing activity in the region
Looking ahead to the second half of the year, the report foresees that while the persistent shortage of quality spaces is expected to drive rent increases in the region, the cautious approach of occupiers is likely to temper the rate of growth.
Knight Frank Asia-Pacific global head of occupier strategy and solution Tim Armstrong said: “Even as the Asia-Pacific logistics sector continues to be characterised by resilient demand, underpinned by the long-term appeal for quality spaces, we see the pace remaining restrained by a cautious occupier base. In the medium term, rising interest rates and slowing growth remain key concerns for the region, impacting consumer spending and consumption.
“Consequently, businesses are expected to maintain reduced inventory levels and streamline their supply chains, leading to a moderation in sector demand and creating prospects for sub-leasing.”
Christine Li, head of research, Asia-Pacific at Knight Frank, added: “Conditions within the Chinese mainland market are displaying a divergence from the rest of the region, as its economy continues to underperform. However, this is counterbalanced by more positive sentiment in other areas, where the growth in demand outpaces the supply of new units. Long-term structural fundamentals also continue to underpin demand in emerging Southeast Asia markets, alongside India, which is progressively gaining significance within the global manufacturing supply chain.
“Overall, the region’s logistics sector remains in adjustment mode, as e-commerce demand continues to adapt to a new cycle in the post-pandemic environment, which will persist into the second half of 2023. We expect supply-side induced rental increases to moderate as occupiers adopt a more selective approach and prioritise future-proofing their logistics footprints.”
Allan Sim, executive director of Land & Industrial Solutions, Knight Frank Malaysia, said: “It is interesting to see the growth of activity in the manufacturing services and primary sectors, as evidenced by the total investment of RM71.4 billion approved in the first quarter of 2023.
“With the “China Plus One” strategy that is now gaining momentum, coupled with the ongoing geopolitical tension, we are witnessing an increase in FDIs especially from the manufacturing sector, stimulating demand for industrial spaces, as exemplified by Tesla’s commitment to establish a head office and Tesla Experience Service Centre under MITI’s Battery Electric Vehicle (BEV) Global Leaders initiative. This has stimulated further growth in the industrial market supply and we should be seeing positive impact on the industry market this year.
“We observed a great number of aged industrial assets going through a regeneration process to cater to the newer requirements, which are driven by automation and the ESG agenda. This flight towards quality is further cemented through the integration of ESG elements in developments as evidenced by the increasing number of managed industrial parks within the country.”