Grade A warehouses in China are highly standardized products, meaning what distinguishes them is less the properties themselves than external factors – namely, location. This begs the question: would it be possible to develop a formula for assessing the desirability of a warehouse based purely on geographic criteria?
JLL China Research’s new in-house technology team makes this possible. Together we used Geographic Information Systems (GIS) software to develop a Logistics Asset Suitability Analysis model, which we tested in the Yangtze River Delta (YRD) region near Shanghai. In this explanatory video, I elaborate on how the model helps to assess logistics locations based on a series of discrete analyses that assess a region based on features that are important to logistics warehouse developers and tenants.
We first refined the model by focusing on a basket of warehouse projects regularly tracked by JLL Research. Since a majority of China’s warehouse leasing is driven by consumer distribution requirements, we shaped the model to favor projects located near expressways that connect cities with large groups of consumers. Other criteria include local economy size and retail sales, commute to major downtowns, and estimates of how many consumers, stores, or last-mile delivery depots can be accessed with certain drive times from each property.
Source: JLL Research
The model combines these factors to assign scores to each project. We cross-referenced those results with the projects’ actual rental levels, which we took as a proxy the properties’ desirability in the eyes of tenants. After some tweaking of weights for various criteria, we achieved a result in which projects’ scores in the model rose and fell in parallel with their real-world rental performance. In other words, the model ranks properties in the same way that tenants do by voting with their rental dollars.
With this proof of the model’s capacity to assess location desirability, we shifted focus from only considering existing project locations to analyze the whole YRD region. We divided the region into a grid of 2.5km squares and assessed each on a series of metrics similar to the initial model. The final result divides the YRD into zones shaded according to their suitability scores for logistics warehouse development:
Source: JLL Research
While the model predictably shows the retail center of Shanghai as the region’s top spot for warehouses, it also highlights adjacent areas like Kunshan, Taicang, Changshu, and Wuxi as promising areas for development – something developers themselves have confirmed by entering these markets over the past several years.
Though still at the prototype stage, our model shows that the potential for this technology to visualize, quantify, and combine the factors that drive location choice in the country’s logistics industry. Going forward, we hope to add new criteria while also testing the model in other regions.
This logistics suitability analysis is a first step to creating GIS tools that can empower decision-making for logistics developers, investors, and tenants, and is just one example of the ways that JLL China is tapping new technologies to create value for clients. To see more ways we are incorporating technology into our business, check out our ‘The Future of Real Estate’ China Proptech Forum & Exhibition, which takes place in Beijing and Shanghai on 8-9 May 2019.
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