While discussing the Beijing non-bonded (Non-bonded refers to warehouse space not subject to dutiable trade restrictions) warehouse market with a client the other day, the e-commerce sector came up in conversation. Several e-commerce firms had leased space in areas surrounding Beijing such as Tianjin and Langfang, Hebei Province. At first glance this trend seemed a bit strange for two reasons. First, Beijing has the largest retail market in China with 2012 retail sales of RMB 770 billion according to the National Bureau of Statistics. Second, e-commerce revenues are taking off in China – turnover of RMB 8.1 trillion in mainland China in 2012 (China e-business Research Center); CAGR of 26.6% since 2008. According to iResearch several of the e-commerce firms with a presence in Beijing recorded strong y-o-y growth in 2012. However, the recent growth of these firms and the e-commerce sector is one of the main reasons for their relocation to areas outside of Beijing.

Although turnover is high, competition is fierce in the business-to-consumer e-commerce sector as online retailers are rapidly expanding capacity and adding fulfilment centres (a distribution centre where orders are filled) to meet the growing demand for goods sold online. Further complicating matters is the price-sensitive nature of online shoppers who need only click over to a competitor’s site to compare prices. Competition for non-bonded space from retail, and other industries, has led to strong rental growth. The typical non-bonded lease term is three years and over the past three years, non-bonded market rents in Beijing have increased by over 35%. The Tongzhou Logistics Park (TLP) is the Beijing submarket closest to Tianjin and Langfang. Current rents for high quality space in these areas can be as much as 30% lower than TLP – a significant savings.

Another challenge facing the expanding e-commerce sector is the undersupplied nature of the Beijing market. The vacancy rate has hovered at or below 5% for nearly three years, even dipping as low as 1%. New supply is often fully pre-leased or absorbed within a short time of completion. Several of the largest e-commerce companies (by gross merchandise volume) have established fulfilment centres of 100,000 sqm or more in Tianjin and Langfang. Expanding operations in a single space that size in Beijing would be extremely difficult, if not impossible.

E-commerce firms relocating outside of city limits is a trend that we expect to continue in Beijing, if not the whole of China, as the central government has prioritised improving infrastructure and lowering logistics costs. Indeed, we have seen several domestic and international players follow this approach. However, most are still maintaining smaller distribution centres within city limits to facilitate speedy delivery times, often same day delivery by courier. Moreover, we do not expect the shift in e-commerce demand to have a significant adverse effect on the Beijing market as other types of occupiers should quickly fill vacant space.

You can read about e-commerce and other trends affecting logistics markets around China by subscribing to Logistics Intelligence Service; our industrial data and forecast service.

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