China logistics real estate market (CBRE)

Macro Fundamentals

CHINA LOGISTICS MARKET

2 CBRE CHINA RESEARCH

GDP GROWTH IS EXPECTED TO SLOW

Source: NBS China / Oxford Economics

0

2

4

6

8

10

12

2000-2004 2005-2009 2010-2014 2015-2020

China Average Annual GDP Growth

( %)


Equivalent to the total GDP of Sweden, or two times the GDP of Singapore

ANNUAL 6.9% Y-O-Y GDP GROWTH IS STILL SIGNIFICANT

Source: Oxford Economics (March 2014), International

Monetary Fund: World Economic Statistics (Dec 2013).

0

100

200

300

400

500

600

700

China (YoY Increase in GDP, 2015-2020) Sweden (2013 Total GDP) Singapore (2013 Total GDP)

(US$ billion)


Replacing investment as China undergoes structural change

CONSUMPTION WILL EMERGE AS THE MAIN ECONOMIC DRIVER

Source: Oxford Economics (Mar 2014)

6.0% 0.5%

48.6%

41.8%

32.5%

45.7%

13.0% 12.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000-2010 2011-2020

Share of Annual GDP Growth

Net Exports Investment Private Consumption Others


And at a faster rate than other countries in the APAC region

AS DISPOSABLE INCOMES AND SPENDING ACCELERATE

Source: Oxford Economics (April 2014)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% Growth in Real Disposable Income per Capita, 2014-2020 (f)

0%

10%

20%

30%

40%

50%

60%

70%

80%

% Growth in Private Consumption, 2014-2020 (f)


Taking an increased share of total world trade

WHILE CHINA WILL REMAIN A MAJOR TRADING POWER

Source: Oxford Economics (Mar 2014)

3%

4%

5%

6%

7%

8%

9%

10%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

China: Total Exports and Imports, ($ Billions) Share of Total World Trade (%)


Where China lags behind other countries

IMPROVING EFFICIENCY ACROSS THE LOGISTICS NETWORK

Source: World Bank (2014)

3

3.2

3.4

3.6

3.8

4

4.2

Hong Kong Germany United States United Kingdom Australia China

2007 2010 2012 2014

World Bank Logistics Performance Index


Where China is, again, far behind more developed markets

AND DRIVING A BUILD-OUT IN MODERN WAREHOUSE STOCK

Source: China Association of Warehouses and

Storage, US Census Bureau (2012), GLP (2013).

0.41

5.06

0

1

2

3

4

5

6

China United States

Logistics Space per Capita

(sm per capita)

Logistics costs as % GDP in 2008

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

China United States

CURRENT TRENDS IN CHINA’S

LOGISTICS MARKETS


LOGISTICS RENTAL INDEX

Source: CBRE Research

Footnote 1: Tier 1: Beijing, Guangzhou, Shanghai and Shenzhen. Tier 2: Chengdu, Chongqing, Nanjing, Tianjin,

Hangzhou, Dalian, Wuhan Footnote 2: Rents are quoted on a net basis, excluding taxes and service charges

80

100

120

140

160

180

Q1 03

Q3 03

Q1 04

Q3 04

Q1 05

Q3 05

Q1 06

Q3 06

Q1 07

Q3 07

Q1 08

Q3 08

Q1 09

Q3 09

Q1 10

Q3 10

Q1 11

Q3 11

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Rental Index ( 2003 Q

1 =

100)

Tier-1 city Tier-2 city


LOGISTICS RENTS GREW FASTER THAN OTHER SECTORS

Source: CBRE Research (April 2014)

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2012.1 2012.2 2012.3 2012.4 2013.1 2013.2 2013.3 2013.4 2014.1

Logistics Retail Office


DESPITE AN INCREASE IN INDUSTRIAL LAND SUPPLIES

Source: CBRE Research (March 2014).

791

1,259 1,204 1,018

1,333

156

256 354

391

557

354

565

766

748

811

7

22

40

47

35

-

500

1,000

1,500

2,000

2,500

3,000

2009 2010 2011 2012 2013

RESIDENTIAL COMMERCIAL INDUSTRIAL OTHER

(million sm)


LAND PRICES CONTINUED TO RISE

Source: CBRE Research (Q1 2014)

80

100

120

140

160

180

200

220

240

260

1Q

20

03

3Q

20

03

1Q

20

04

3Q

20

04

1Q

20

05

3Q

20

05

1Q

20

06

3Q

20

06

1Q

20

07

3Q

20

07

1Q

20

08

3Q

20

08

1Q

20

09

3Q

20

09

1Q

20

10

3Q

20

10

1Q

20

11

3Q

20

11

1Q

20

12

3Q

20

12

1Q

20

13

3Q

20

13

1Q

20

14

Land Pric

e Index Base =

Q

1 2003)

Tier-1 Tier-2


But are relatively high in lower-tier cities

WAREHOUSE LAND TRANSACTIONS ARE LOW IN KEY CITIES

Source: CBRE Research, Soufun, Municipal Government Land Market Websites (April 2014)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

Shenzhen Shanghai Beijing Guangzhou Wuhan Chengdu Chongqing

(sm)

Total Sales of Land Parcels for Warehouse Development in 2013


Kunshan and Langfang are located outside Shanghai and Beijing, respectively.

BUT HIGHER IN ‘SATELLITE CITIES’ NEAR MEGA CITIES

Source: Soufun, Municipal Government Land Market Websites (April 2014)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Beijing Langfang Shanghai Kunshan

Total Sales of Land Parcels for Warehouse Development in 2013

(sm)


INDUSTRIAL YIELDS LOOK COMPARATIVELY ATTRACTIVE

Source: CBRE Research (Q4 2013)

6.5 6.7

5.1

4.5

5

4.5

2.6

3.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

BJ SH BJ SH BJ SH BJ SH

Five Year High

Current Cap Rate

Five Year Low

(%)

INDUSTRIAL OFFICE SHOPPING CENTER RESIDENTIAL

MAJOR DEVELOPERS AND THEIR

EXPANSION PLANS


KEY DEVELOPERS HAVE EXPANDED THEIR FOOTPRINT

Source: CBRE Research (April 2014).


According to the China Association of Warehouses and Storage, there was a total of 698 million sm of commercial warehouse space in

China as of 2012.

Modern logistics space held by the top 12 logistics operators tracked by CBRE totaled just 13 million sm as of the end of 2013.

Supply: Standard warehouse stock is limited and market share is concentrated

CURRENT LOGISTICS FACILITES MARKET

Modern Logistics Facilities only Accounted for <2% of total Major Logistics Developers’ Market Share (as of Q4 2013)

Source: CBRE Industrial Database, Q4 2013. Source: CBRE Industrial Database, Q4 2013.

13

698

0

100

200

300

400

500

600

700

800

Modern Logistics Facilities Total Logistics Facilities

China Logistics Facilities Stock


With GLP being the dominant player…

AND WILL FURTHER EXPAND THEIR SPACE IN 2014


0

2

4

6

8

10

12

2010 2011 2012 2013 2014 (F)

Total GLP Mapletree Goodman Prologis e-Shang


DEVELOPERS ARE RAPIDLY BUILDING THEIR LAND BANK

2.7

6.5

2.1

4.3

0

2

4

6

8

10

12

2012 2014

GLP Goodman(sm)

Source: Company Reports (2014).


WITH LOWER TIER CITIES SEEING A SUBSTANTIAL INCREASE


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Langfang Chongqing Ji'nan

2010 (Built and Under Construction) 2013(Built and Under Construction)


CURRENT DISTRIBUTION OF MODERN LOGISTICS FACILITIES

Note: The statistics are based on 12 major developers in industrial sector in China, including GLP, Goodman, Blogis, Prologis, Mapletree, Yupei, PGL, e-Shang,

CBRE GI, Galazeley, Vailog and Dongjiu.



WHICH WILL CHANGE AS DEVELOPERS MOVE INLAND


Note: The statistics are based on 12 major developers in industrial sector in China, including GLP, Goodman, Blogis, Prologis, Mapletree, Yupei, PGL, e-Shang,

CBRE GI, Galazeley, Vailog and Dongjiu.

OCCUPIER DEMAND DRIVERS

E-COMMERCE


E-COMMERCE PLAYERS HAVE SPREAD THEIR OPERATIONS

Xi’an

Chengdu

Tianjin

Shenyang

Wuhan

Shanghai Suzhou

Nanjing

Beijing

Guangzhou

Shenzhen

Xiamen

Zhengzhou

Ji’nan

Jiaxing

Hangzhou

Wuxi Hefei

Chongqing

Xuzhou

Qingdao

Jingdong

Yihaodian Dangdang

Letao Amazon

Vancl New Egg

Walmart Suning

Source: CBRE Research


AND PLAN FOR MORE SELF-OCCUPIED FACILITIES IN THE FUTURE

E-commerce

enterprises Warehouses Trends on Warehouse Development

JD.com Self-built and Leasing

•Launched two warehouses in Chongqing in June with a total area of 40,000 sm.

•More than 20 warehouses are under construction.

Tencent Self-built and Leasing

•Six distribution centers in Beijing, Shanghai, Shenzhen, Chongqing, Xi’an and Wuhan.

•A 230,000-sm warehouse in Qingpu, Shanghai is under construction and will be completed

in 2014.

Dangdang.com Self-built and Leasing

• More than 23 logistics centers with a total area of more than 500,000 sm

• To build 45 warehouses nationwide in 2014 and more than 100 warehouses in the next

three years.

Alibaba Self-built and Leasing

• Secured land in Tianjin, Wuhan, Zhengzhou, Chongqing, Chengdu, Dongguan and etc..

• Acquired 260 mu land in Jiading, Shanghai in 2012.

• Warehouses in Wuqing, Tianjin completed and started leasing.

Suning.com Self-built and Leasing • To build 60 logistics bases and 12 auto-warehouses in 2015.

Amazon Self-built and Leasing • Owns 13 warehouses with a total area of 850,000 sm

VANCL Self-built and Leasing • To build self-owned logistics facilities to cover tier-1 cities

VIP.com Self-built and Leasing

• Had built 40,000 sm warehouses nationwide in the end of 2013.

• Aquired 900 mu land in Zhaoqing, 300 mu in Kunshan with GLP, 300 mu in Wuqing, 1,500

in Ezhou, 1,500 in Chengdu, and 900 mu in Guangzhou which will be the largest logistics

center in South China.

• More than 6,000-mu land to build warehouses and VIP.com will utilize 60% of them after

completion.


AS SECTOR REVENUES HAVE SEEN RAPID GROWTH

Source: China E-Commerce Research Center (2013)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 … 2017E

(RMB bn)

Online Sales


WITH B2C ONLINE SALES TAKING A LARGER SHARE

7.8%

13.7%

25.3%

29.6%

35.1%

40.8%

45.7% 49.4%

52.4%

92.2%

86.3%

74.7%

70.4%

64.9%

59.2%

54.3% 50.6%

47.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013 2014(F) 2015 (F) 2016 (F) 2017 (F)

B2C C2C

Source: CBRE Research (2014)

Footnote: C2C = consumer-to-consumer; B2C = business-to-consumer

THIRD PARTY LOGISTICS


DOMESTIC 3PLS ARE BUILDING THEIR NETWORKS

Deppon D

Best Logistics B

Yunda Y

Wuhan D

Harbin D

Langfang

D

Shenyang

D

Nanjing

D D

Hefei

Y

Chongqing Y

Suzhou D Y B

B

Zhongshan B

Xian

B Yangzhou D B

Changzhou

B B

Nantong B

Xiamen

B

Wuhu

B

Nanning B

Source: GLP, CBRE Research (Mar 2014).


DRIVING LEASING DEMAND

Tenant Date Project Leased area (sm) Province City Developer

Deppon 2013.1 GLP Park Jiangxia Phase I 68,000 Hubei Wuhan GLP

Deppon 2013.1 GLP Park Hanan 23,000 Heilongjiang Haerbin GLP

Deppon 2013.1 GLP Park Langfang 53,000 Hebei Hebei GLP

Deppon 2013.1 GLP Park Hefei Hi-Tech Phase I 24,000 Anhui Hefei GLP

Deppon 2013.4 GLP Park Wangting 18,000 Jiangsu Suzhou GLP

Deppon 2013.4 GLP Park Hunnan 7,000 Liaoning Shenyang GLP

Deppon 2013.4 Goodman Lishui Distribution Center 63,400 Jiangsu Nanjing Goodman

Deppon 2014.1 GLP Park Yangzhou Phase I 16,000 Jiangsu Yangzhou GLP

Best Logistics 2013.2 GLP Park Suzhou SND 23,000 Jiangsu Suzhou GLP

Best Logistics 2013.2 GLP Park Huangpi 19,800 Hubei Wuhan GLP

Best Logistics 2014.1 GLP Park Zhongshan 34,000 Guangdong Zhongshan GLP

Best Logistics 2014.1 GLP Park High-Tech Zone Xian 19,000 Shanxi Xian GLP

Best Logistics 2014.1 GLP Park CND 16,000 Jiangsu Changzhou GLP

Best Logistics 2014.1 GLP Park Nantong Economic & Technology

Development Area 16,000 Jiangsu Nantong GLP

Best Logistics 2014.1 GLP Park Yangzhou Phase I 10,000 Jiangsu Yangzhou GLP

Best Logistics 2014.1 GLP Park Jinjiang 13,000 Fujian Xiamen GLP

Best Logistics 2014.1 GLP Park Jiujiang 8,000 Anhui Wufu GLP

Best Logistics 2014.1 GLP Park Nanning Economic Development

Area 6,000 Guangxi Nanning GLP

Best Logistics 2014.1 GLP Park Feidong 21,000 Anhui Hefei GLP

Yunda 2013.3 GLP SND 32,000 Jiangsu Suzhou GLP

Yunda 2013.4 Goodman Hefei EDTA Distribution Center

Phase I 29,300 Anhui Hefei Goodman

Yunda 2014.1 Goodman Chongqing Airport 46,700 Chongqing Chongqing Goodman

Source: GLP, Goodman, CBRE Research


AND BECOMING A KEY OCCUPIER GROUP

Source: GLP Annual Reports, 2011-2013

0% 20% 40% 60% 80% 100%

2011

2012

2013

Retail & Catering 3PL FMCG Electrical Goods Auto Others Medical Machinery

A CLOSER LOOK AT KEY MARKETS


BEIJING

• Rent growth plateaued in 2013, as more occupiers moved to markets like Langfang and Tianjin due to high rent in Beijing

• Supply in 2014 is expected to increase 45% y-o-y, which should alleviate the tight supply situation but will cap rental growth

in the near term

• Solid demand from e-commerce, retailers and 3PLs in Q1 2014 resulted in a 2% q-o-q increase in rents.

• 2014 Rent Outlook: 3-5%

Source: CBRE Research (Apr 2014) Source: CBRE Research (Apr 2014)

15

20

25

30

35

40

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2011 2012 2013 2014 (f)

New Developments Rent (RHS)(sm) Rent (RMB per sqm)

0%

2%

4%

6%

8%

10%

12%

14%

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Vacancy


BEIJING: GLP IS THE DOMINANT PLAYER

Completed GFA (sm) GFA Under Construction (sm) Land Bank (sm)

GLP 696,600 159,078 607,000

Goodman 42,000 58,370 -

Mapletree 14,073 - -

Yupei 0 -92,000 -

China Resources Logistics 49,000 44,000 -

Source: CBRE Research (2013).


SHANGHAI

• Rents for low-to mid-end warehouses have risen sharply in recent months

• A significant uptick in new supply completions in 2014 up approximately 650,000 square meters on 2013

• Demand will remain strong in 2014, particularly since we expect progress on the Shanghai Free Trade Zone

• Q1 2014: prime rents up 5.2% q-o-q

• 2014 Rent Outlook : 8-10%


15

20

25

30

35

40

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2007 2008 2009 2010 2011 2012 2013 2014 (F)

New Developments (LHS) Prime Rent (RHS)

(sm) (RMB per sm per month)

0%

2%

4%

6%

8%

10%

12%

14%

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Vancancy


SHANGHAI: A MORE COMPETITIVE MARKET

Completed GFA (sm) GFA Under Construction (sm)

Blogis 317,729 -

GLP 1,708,292 783,000

Goodman 506,883 150,500

Mapletree 157,444 0

Yupei 211,654 126,000

Dongjiu 17,462 0

e-Shang 141,205 117,258

Vailog 42,270 226,999

Source: CBRE Research (2013).


SHANGHAI

• Developers have increasingly been looking out of town for sites in districts such as Songjiang and Fengxian, as well as

in satellite cities such as Kunshan, Taicang and Jiaxing, which have become more viable for development because of

better availability of land supply and improved infrastructure.

• These locations also serve as a strategic supply point for major industrial zones and other key markets in neighboring

cities such as Suzhou and Nanjing.

Developer Location Project Name GFA (sm) Status

Blogis Kunshan Blogis Kunshan 130,000 Built

Goodman Kunshan Goodman Lujia Logistics Centre 381,100 Built

Goodman Fengxian Goodman Fengxian International Logistics Park 125,800 Built

Yupei Shanghai Northwest Logistics Park 60,000 Built

e-shang Kunshan Kunshan Huaqiao Logistics Park - Phase 1 133,615 Built

GLP Fengxian GLP Park Fengxian Seaport 44,000 Under construction

GLP Taicang GLP Park Taicang 101,000 Under construction

Goodman Jiaxing Goodman Yaozhuang Logistics Centre 50,500 Under construction

Yupei Kunshan Yupei Kunshan Logistics Park 126,000 Under construction

Vailog Shanghai Songjiang DP 115,999 Under construction



GUANGZHOU


15

20

25

30

35

40

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2008 2009 2010 2011 2012 2013 2014 (F)

New Developments (LHS) Rent (RHS)(sm)

RMB per sqm. per month

• No new supply in Guangzhou in 2013

• Enquiry levels have been high, particularly from e-commerce, 3PLs and pharmaceutical companies

• New supplies of 125,000 sqm in 2014, mostly pre-leased

• 2014 Rent Outlook: 6-8%, compared to 2-3% 2012-13

0%

2%

4%

6%

8%

10%

12%

14%

Q1

2007

Q3

2007

Q1

2008

Q3

2008

Q1

2009

Q3

2009

Q1

2010

Q3

2010

Q1

2011

Q3

2011

Q1

2012

Q3

2012

Q1

2013

Q3

2013

Vacancy


GUANGZHOU: LIMITED NEW SUPPLY IN THE PIPELINE

Completed GFA (sm) GFA Under Construction (sm) Land Bank (sm)

Blogis 18,000 150,000 0

GLP 400,000 0 One project, GFA unknown

Goodman 0 0 40,000

Mapletree 120,000 0 0

Prologis 122,000 0 0

EMERGING HUBS


CHENGDU

CHENGDU


CHENGDU

Basic Profile

• Large urban population: estimated at 7.2 million at the end of 2014

• Rapid urbanization: 38% increase in population expected by 2025

• High performer: GDP growth of 13% in 2012, far outstripping national growth of 7.7%

Drivers

• Government support: tax incentives for services and high value-added industries

• Cost advantages vs. eastern regions: minimum monthly wage of RMB 1,200, vs. RMB 1,808 in Shenzhen

• Emerging manufacturing base: already home to MNCs, including Intel, HP, Microsoft, Toyota and Volkswagen

• New trade hub: linked to rail and road networks that will connect China with Europe, South East Asia and Central

Asia

Land Supply

• Markets: Looser compared to first-tier cities

• Prices: Average transaction price in RMB 275 per square meter in 2013


WUHAN

WUHAN


WUHAN

Basic Profile

• Large population: urban population estimated at 7.2 million at the end of 2014

• Rapid urbanisation: 46% increase in population expected by 2025

• Another high performer: GDP growth of 11.5% in 2012, vs. national growth of 7.7%

Drivers

• Central location: key transport link servicing east-west, north-south supply lines

• Well-connected: 4.5 hrs by train to Shanghai, 5 hrs to Beijing and 4 hrs to Guangzhou

• Distribution point for rapidly-growing 3rd

/4th

tier cities: such as Zhengzhou, Changsha and Nanchang

• Auto production hub: home to Peugeot, Nissan, Honda and General Motors

Land Supply

• Prices: Average transaction price in RMB 250 per square meter in Q1 2014

DEVELOPMENT TRENDS


Developers will expand to cities along the Yangtze River Economic Belt

STRATEGIC OUTLOOK FOR STANDARD WAREHOUSING DEVELOPMENT

Existing Modern Logistics Facilities in China (as of Q4 2013) Future Modern Warehouse Distribution in China (by 2016YE)

Source: CBRE Industrial Database, Q4 2013. Source: CBRE Industrial Database, Q4 2013.


E-commerce is penetrating outside of tier-1 cities


Source: Alibaba Research Centre, Q4 2013

Note：China E-commerce Development Index Report – county level published by Ali Research Centre in 2013. Group ranking was obtained as per

the Alibaba E-commerce Development Index which is comprised of two equally weighted primary indices, namely, the Netrepreneur Index and the

Purchasing Index. The Netrepreneur Index includes two secondary indices on online density and online trading per shop, each with a weight of 0.5.

The Purchasing Index includes two secondary indices on online consumer density and online consumption per capita, each with a weight of 0.5.

E-commerce development in China at the county level in 2013


Summary


As the China logistics market continues to mature, the Built-to-Suit format will be

increasingly adopted along with the traditional development of standardized warehouses.

Logistics developers will be more likely to sign master agreements with key tenants to

provide logistics facilities across the country;

The expansion of logistics developers’ footprint will be closely aligned with the

development and penetration of e-tailing in China;

The growing difficulty in acquiring land in strategic locations will likely result in

international logistics developers establishing strategic alliances with large domestic

developers and/or 3PL firms which have better access to industrial land;

1

2

3

4

REDEVELOPMENT OF OLD

INDUSTRIAL STOCK


OVERCAPACITY IN CHINA’S MANUFACTURING SECTOR

Years of excess investment in industries such as steel, cement and general

manufacturing have left China with severe overcapacity issues

This has made worse by recent increases in input costs, an appreciating

exchange rate and lending curbs

Also, local authorities are putting manufacturers under pressure to develop

high-value added products, which may result in excess factory space

As such, there may be opportunities in re-developing old industrial bases

into modern logistics/warehouse facilities


CASE STUDY 1: GOODMAN SUZHOU LOGISTICS CENTRE

Offers five warehouses with a combined

GFA of 95,000 sqm

In Q1 2014, Goodman leased 54,880 sqm

to Cainiao, with the new space to become

an East China Regional Distribution

Center for Tmall.com – China’s leading

B2C e-commerce site

In 2012, Goodman purchased factory space with a land attachment in West Suzhou

Following redevelopment and retrofitting, the space was completed in early 2014


CASE STUDY 2: GLP BAOSHAN, SHANGHAI

GLP acquired a former paper factory in 2012 in Baoshan, a traditional industrial area in

North Shanghai

In total, the site comprises two parcels with a total area of 229,610 sqm

GLP is currently demolishing the existing buildings on the site and will develop two

warehouses for release in mid-2015

CO-OPERATION WITH SOES


COOPERATION WITH SOES

Land supply varies across the country, with our data showing relatively more land parcels

for warehouse/logistics development in lower-tier cities

However, accessing land markets and cutting through opaque regulations and land

allocation practices remains a challenge

Relationship networks and bias toward domestic players often clouds or frustrates the

process of acquiring land resources

The process of acquiring land has become even more challenging as rapid urbanization

and structural economic change have ramped up competition for land resources

One way of approaching this problem is to seek strategic partnerships with SOEs in China


CASE STUDY: GLP AND SINOTRANS

In February, GLP signed a strategic partnership with Sinotrans, China’s largeststate-owned third-party

logistics company

GLP will cooperate with Sinotrans to develop a national network of logistics facilities

Initially, the two companies will cooperate and develop new facilities in Shanghai and Guangdong

The deal is significant for GLP because it offers them a partnership with a company which has access to

strategic land holdings

As the 3PL sector undergoes expansion, Sinotrans is looking to build out its network of logistics facilities

across China

SUMMARY


Macro

• GDP: China’s economy is slowing but 6.9% average y-o-y growth between 2014-2020 still represents an

additional US$601 billion per year

• Consumer: private consumption will emerge as a main economic driver, growing by an average of US$ 250 billion

per year between 2014 and 2020

• Structural Change: inland provinces will contribute a greater share of output, as companies relocate to exploit

cost advantages and rapidly growing consumer markets

• Infrastructure: build-out will support economic rebalancing to inland regions and result in the emergence of new

trade hubs

China’s Logistics Markets

• Rents and yields: industrial rent growth has outperformed other asset classes during 2013 and yields look

comparatively attractive

• Land prices: prices for industrial land have increased, particularly in first-tier cities

• Land supply: tight in first-tier cities, but comparatively looser in lower-tier cities and ‘satellite’ cities around key

first-tier cities

• Development pipelines: general increase in 2014, major developers are targeting lower-tier cities, ‘satellite city’

locations and inland regions


Demand Drivers

• E-commerce: penetration is relatively low in inland provinces

• Infrastructure build-out : new trade hubs are emerging in underdeveloped regions

• E-commerce/3PL occupiers: are building their networks to capture rapid revenue growth

Key Markets

• Beijing: New supply, vacancy upticks expected in 2014. Y-o-y rent increases of 3-5% forecast for 2014

• Shanghai: Burgeoning demand will drive rent growth of 8-10% in 2014

• Guangzhou: Historically undersupplied. New supplies of 125,000 sqm expected in 2014. Rents expected to grow

6-8% y-o-y (2013: 3% y-o-y) on robust demand

• Chengdu: Rental growth of 4-6% y-o-y following supply uptick in 2014


Risks

• Oversupply?: logistics warehouse development is attracting a lot of investment capital, major domestic players

(such as Vanke) are entering the market. Development pipelines have grown markedly and developers have

expanded their land banks

• Rising operation costs: China’s cost of labor advantage is eroding

• Opaque land allocation practices: land markets are controlled by local authorities who may favor domestic

players; however, supply prospects in lower-tier and new ‘satellite’ cities may be better, given the need to build-

out infrastructure to support the government’s new consumer-led economic growth model

Opportunities

• Macro: The potential for China’s consumer market is huge

• Emerging trade hubs: such as Chengdu and Wuhan will emerge as key distribution points to support inland

regions

• New trade routes: overland transport links are being developed to connect China with South East Asia, Central

Asia and Europe

• Redevelopment of old industrial stock: China has excess industrial capacity

• Cooperation with domestic players/SOEs: may sidestep land supply constraints

For more information regarding this presentation please contact:

Frank Chen, CFA

Executive Director, Head of Research, China

D +86 21 2401 1369

F +86 21 5403 7430

Email: [email protected]

Thank you !

Q & A

Documents

China logistics real estate market (CBRE)