The logistics sector is on the rise on the back of the emerging e-commerce and 3PL market. One of the key factors to consider in this development process is the location of logistics facilities. This blog post will cover the south-east, west and Seoul regions, along with the trend developers follow when choosing locations of logistics facilities.
1. Location of logistics facilities
Factors influencing developers’ choice of logistics facility locations include competitive land prices, the supply of labour and access to expressways, as well as the proximity to Seoul. In the past, developers tended to select locations with competitive land prices and easy access to expressways. However, more logistics facilities are moving closer to Seoul despite significant headwinds.
2. Reasons behind urbanisation of logistics facilities
The core driving factors behind the urbanisation of logistics facilities is the growing demand for cold-chain storages and quick delivery services. The need for ‘dawn delivery’ – quick, overnight delivery of products – has boosted demand for centralised cold-chain storage facilities. Generally, fresh food products with comparably short expiration dates require swift delivery. The number of single-person households has spiked in Korea, causing changes in customers’ grocery-shopping behaviour. More online shopping platforms now offer HMR (Home Meal Replacement) items with small servings, targeting single-person households. In an attempt to improve customer satisfaction, several market players now offer a quick delivery service in the Seoul Capital Area. They take less than 24 hours from order to delivery. To efficiently deliver products on time, logistics facilities near Seoul are gaining more interest from these e-commerce players.
Figure 1: Location Map
Source: JLL
3. How preferred locations of logistics facilities evolve over time
Lower land price
The south-east area of Seoul (#1 on the map) is the most concentrated region with logistics centres in Seoul Capital Area (SCA). It is considered to be one of the most preferred locations with excellent access to expressways. Jungang Expressway is a central transport route that runs through Busan Port and Seoul’s south-east. Busan Port, which is located on the south-east tip of the Korean peninsula, handles about 75% of Korea’s shipping volume, making it SCA’s key logistics point. Within JLL’s stock, about 42% of Grade A logistics centres within SCA are currently located in the south-east area (#1).
Generally closer to Seoul compared to the south-east area
The area west of Seoul (#2 on the map), including Incheon, is closer to Seoul compared to area #1. While this area may allow quicker deliveries to Seoul, developers combat several headwinds when selecting facilities in this area. Some of these include high land prices and the extra costs associated with converting outdated facilities (demolishing and rebuilding) to create cold-chain logistics centres within existing industrial complexes.
New logistics facilities in the west/Incheon area could see new demand due to its location advantage. Incheon International Airport handles about 83% of air cargo in Korea and Incheon Port, the second largest port in Korea, handles 11% of Korea’s shipping volume. Logistics centres in the west/Incheon area attract not only domestic demand but also welcome international trading companies as potential tenants.
Seoul
Currently, there are not many logistics facilities in Seoul due to lack of space and expensive land prices. However, more developers are considering Seoul as an option when planning logistics facilities to compete against other market players.
Despite Seoul’s high land prices, the demand for logistics facilities here is robust, driven by heightened interest in a quick delivery service. For example, Harim, a domestic F&B conglomerate, supposedly has plans to build an automated, high-spec logistics centre in Seocho-gu, Seoul, which is close to Gangnam. Harim owns the land, thereby easing the burden of development costs. Soon, there could be more e-commerce market players utilising the land they own in Seoul to build logistics facilities.
In April 2020, Lotte, one of the major retail giants, announced to reduce their offline retail channels. They want to improve liquidity and redirect their efforts toward the development of a new growth engine, such as e-commerce. The company reportedly plans to convert several stores into ‘Dark Stores’. The term refers to regional warehouses/logistics hubs, which provide a collection point for ‘click-and-collect’ service for online orders,
Building small and large logistics facilities in Seoul will enable market players to offer a quick delivery service. Alluding to this consideration criteria, when choosing the location of centres, it is worth keeping an eye on how these logistics facilities are moving closer to Seoul.
More on 'Logistics & Industrial' in 'Korea'
- Cross-border e-commerce thrives in South KoreaMay 24, 2024
- The K-wave calls for production studios in KoreaMay 19, 2023
- Rising inflation and the Korean logistics marketAugust 16, 2022
- Land restoration for logistics development in KoreaNovember 25, 2021
- ESG brings changes to Korea’s real estateMarch 9, 2021
