This article is from the Australian Property Journal archive
LOW ecommerce penetration and a population set become the world’s largest has India primed as the highest-potential logistics growth market, while Australia’s sector is considered the “one to watch” in the Asia Pacific.
According to Savills Leaders and laggards report, India is highly mobile-enabled and offers low labour costs and high-density urban areas, but without the same manufacturing boom.
“India is also much earlier on the online retail curve and has an ecommerce penetration rate of just 3.6%. However, with a population that is forecast to overtake China’s in the next five years, this market offers vast potential.” Paul Tostevin, director, Savills world research said.
In comparison, more than 25% of all retail spending in current global leader China is conducted online, making it the biggest ecommerce market in the world.
Its rise to the position has been driven by a population embracing mobile payments, and the dual logistics giants Alipay and WeChat Pay are owned by and tightly integrated with ecommerce retailers, making online shopping a seamless experience.
James Macdonald, head of Savills China research, said physical retailers in China have historically suffered from restricted product ranges.
“Offering expanded choice, early ecommerce entrants sold straight from the factory, making them extremely competitive on price. On top of this, high urban population densities and low labour costs made delivery fast and cheap.”
Alibaba is the majority owner of Cainiao Smart Logistics Network, a venture between Alibaba and multiple logistics companies and financial institutions. Cainiao currently processes 100 million packages each day and is aiming to process one billion per day in a decade.
Alibaba has launched supermarket and last-mile delivery centre Fresh Hippo, and is rumoured to be planning micro-stores within some communities that would offer home delivery of products within minutes.
The company’s major rival, JD.com has developed its own logistics network.
South Korea has the second-highest ecommerce penetration rate in the world, at just over 24%. According to Savills Korea research & consultancy, there are about 400 logistics centres of more than 10,000 sqm in the Seoul Metropolitan Area, with an estimated pipeline of 1.8 million sqm in 2018 and 1.9 million sqm in 2019, of which 25% is pre-committed or marked for own use.
While Korean logistics assets yields are firming, they are still substantially higher than those in the office market. Cap rates are in the mid-6% to 8% range, at least 200 basis points higher than prime offices, and the market has attracted overseas investors including CPPIB, M&G, Morgan Stanley and Blackstone, accounting for more than 75% of deals in 2017 alone.
Tostevin said European and many Asian markets benefit from high population densities, but Australia, Canada, and, to some extent the United States have to contend with more dispersed populations, directly impacting delivery efficiencies. Amazon’s Prime service offers a two-day delivery as standard in the US, compared with a default one-day delivery in the UK.
Amazon has been able to establish one-day delivery in higher density areas such as the north east corridor, from Boston to Washington DC, by establishing several fulfilment centres across the region, as the country pioneers the repurposing of redundant retail assets.
US online retail penetration is not expected to see double-digit jumps any time soon, but sustainable, steady growth.
The UK is Europe’s online retail leader with an ecommerce penetration rate of 19%, well ahead of second-placed Netherlands at 14.9%. In 2012, the UK’s rate was only at about 11%.
Kevin Mofid, director of Savills industrial research, said that by looking at the different European logistics markets and where they are compared with the UK in circa 2012, it should help to forecast how the rapid shift in demand might be replicated.
“The Netherlands, Germany, France, Demark and Sweden are all on the cusp of significant transformation on this basis. Australia is the one to watch in Asia Pacific.”
Savills identified Germany as the European market of greatest attractiveness to investors in logistics, given its position between the eastern and western flanks of Europe and quality infrastructure connections that allow it to generate some of the highest levels of road and seaborne freight in Europe.
Strong investor interest in logistics assets has pushed prime yields in Germany downward, including by 300 basis points in Berlin over the past five years alone.
France has a strong growth potential in ecommerce, given a penetration rate of 11.2%, lower than the UK, the Netherlands, Germany and Demark, with high labour costs putting on pressure.
Sweden also has strong potential, with a penetration rate of 10.5%, and vacancies for modern prime logistics space is currently below 3%.
