‘Sate-lighting’ Shanghai logistics landscape

August 23, 2017 / By – China’s second largest e-commerce company – achieved more than US$17.6 billion sales during its annual “6.18 Shopping Festival”[1]. These results are testament to the wave of online shopping in China.

As e-commerce and affiliated 3PLs become the major drivers of logistics, proximity to the destination market is top priority when locating inventory storage. Location and rents are the top two criteria for tenants, as indicated in data presented in our recent Logistics Demands Mini Whitepaper. Shanghai, Beijing, Guangzhou and Shenzhen all witnessed a shrink in future logistics supply despite strong demand, resulting from challenging first-hand land acquisitions from tightened industrial land supply in Tier 1 cities.

Why satellite cities near Shanghai are in the spotlight

Satellite cities bordering Shanghai such as Jiaxing, Kunshan and Taicang are all equipped with direct traffic access to urban area of Shanghai. In the past, relatively abundant warehouse space and lower prices have allowed these satellite cities to benefit directly from Shanghai’s spillover.

Their popularity has been brought to a higher level this year: Besides tenants’ continuing interest in Kunshan, both Jiaxing and Taicang saw strong net take-ups in 1H17. Taicang logistics market vacancy rate has dropped lower than 5 per cent, while Jiaxing is also receiving high levels of interest.

On the other hand, logistics land supply has started to become constrained in these three satellite cities. During 1H17, first-hand land transaction volume of all three dropped significantly to single digits[2].

Figure 1: Map of mature and emerging satellite hubs
Source: JLL MapIT

All eyes on these new satellite cities as emerging logistics hubs

Who will be next after the three mature satellite cities have been filled? The map (Figure 1) shows an expanded landscape of spillover beneficiaries. Other than Kunshan, Jiaxing and Taicang, cities within two hours’ drive to Shanghai such as Wujiang (Suzhou), Changshu and Wuxi are becoming the next zones of logistics hubs.

Wujiang, the emerging new development zone of Suzhou, is equipped with both vertical and horizontal highways connecting to the two major destination markets, Suzhou CBD and Shanghai.

Changshu, known as the city of auto manufacturing industry, is actively developing modern logistics to better serve its growing service industry.

Wuxi, with two major highways connecting Shanghai, also shares the regional airport in Shuofang. These three cities are currently in the transition period of upgrading their manufacturing industry while promoting their modern service industry, including ‘enhancing modern logistics’ in their “13th Five Year Plans”[3].

Figure 2: Non-bonded existing and future supply of mature and emerging satellite cities
Source: JLL Research

Figure 2 shows a supply snapshot of the logistics market’s maturity and emerging satellite cities. Our data shows that the supply pipeline of Kunshan, Taicang and Jiaxing have all reached peak volume this year, and will narrow in coming years.

The limited supply would drive stronger rental growth in these closer satellite cities, resulting in a second wave of spillover to cities like Wujiang, Changshu and Wuxi, where large spaces, affordable prices and governmental support are available.

As Shanghai keeps working on reducing industrial land supply[4], the spillover effect would persist and expand. That’s when  the logistics property landscape of Greater Shanghai is likely to expand into a galaxy of hubs with diversified demand.

[1] News
[2] Evidenced by CREIS land transaction records
[3] Evidenced by Wujiang 13th Five Year Modern Service Industry Plan; Changshu 13th Five Year Plan; Wuxi 13th Five Year Manufacturing Industry Upgrade Plan
[4] Shanghai Land Resources 13th Five Year Plan claimed to reduce industrial land within Shanghai Municipal area from 27% to 17% by the end of 2020.

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