Market review

2022 recorded multiple sale transactions involving South China’s (SC) logistics assets, demonstrating ongoing interest from foreign investors. In terms of their geographical distribution, most of the underlying assets located in major logistics markets of SC, including Guangzhou, Foshan, Dongguan, and Shenzhen.

Primary indicators such as annual rental growth or occupancy rate showed that SC logistics markets remained relatively healthy throughout 2022, making these assets attractive to investors.

At the same time, slowing economic growth within China in 2022, coupled with occasional fluctuations of leasing demand in some SC logistics markets, slightly reduced landlords’ expected values of their projects, encouraging them and investors to come back to the negotiation table.

Investment trends

In 2022, sales transactions of SC logistics assets showed two distinct characteristics, as illustrated below.

1. The number of high-quality standard warehouses remains limited, leading foreign investors to actively look at non-standard properties.

Given the investment opportunities and the limited number of high-quality standard warehouses, i.e., traditional dry storage warehouses, foreign investors are currently paying more attention to non-standard logistics assets, including cold-storage warehouses, built-to-suit warehouses, and the ancillary properties of logistics assets, such as apartments. Therefore, many logistics asset sales transactions recorded in 2022 involved non-standard properties. To effectively manage the risk of investing in these assets, foreign investors typically prefer non-standard assets that are expected to generate more stable cash flow, for instance, those with existing leasing contracts.

2. Investors are taking a long-term perspective, and undeveloped land parcels become new investment targets.

Apart from existing logistics assets, foreign investors are showing interest in undeveloped logistics land parcels. In 2022, a couple of sales transactions of SC logistics assets bundled existing warehouses with land plots yet to be developed. Despite the risk of future project planning, construction application and consistent capital injection, prudent foreign investors were still willing to purchase these undeveloped land plots, hence adopting a long-term strategy to invest in SC logistics markets. On the one hand, such a phenomenon has shown that foreign investors remain optimistic towards future development of the SC logistic market. On the other hand, this also show that these investors recognize land values in the Guangdong–Hong Kong–Macao Greater Bay Area.

Figure 1: 2022 South China Logistics Assets Purchases by Foreign Investors

Source: JLL South China Research

Market outlook

In the short term, foreign investors may continue to pay close attention to logistics assets in China, as some of them have already completed their fund preparation and set up their future investment plans on logistics assets. As foreign capital may continue to seek  logistics assets in South China, the value of these assets could maintain the current growth momentum. Thus, investment yield on these properties will likely decline steadily in the near run.

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