Logistics demand recorded its customary seasonal increase in Q3 2019 ahead of the upcoming Double 11 online shopping festival. Net absorption totaled 628,000 sq. m., an increase of 79% q-o-q but a decline of 49% y-o-y. Year-to-date net absorption is down by 60% y-o-y, reflecting occupier caution amid slower economic growth.


E-commerce platforms accounted for nearly half of new leases signed this quarter although 27% of these were short-term agreements. Third Party Logistics (3PL) companies and retailers displayed steady demand while cold storage requirements continued to grow, led by fresh food e-commerce providers, omnichannel retailers and pharmaceutical companies.


The ongoing relocations by e-commerce platforms to self-built facilities stabilized with several cases observed in Tianjin and Chengdu. That said, these tenants were also taking advantage of abundant supply and negotiable rents to optimize warehousing sites strategically.


Vacancy edged up to 12% and is projected to increase further in the coming months, with around 2.8 million sq. m. of new supply due to come on stream in Q4 2019. Supply is expected to peak in 2019 but some new schemes may be deferred to early 2020 because of construction delays or slow preleasing. Chengdu, Chongqing, and Tianjin will account for the bulk of new supply this year.


Rents in most cities were flat this quarter but a few markets including Chengdu, Chongqing and Wuhan saw negative growth. Rental performance will diverge between tier I and tier II cities as landlords in western and central regions continue to prioritize high occupancy over rents. 


In the investment market, more institutional investors are investigating the logistics sector as a structural opportunity at the late cycle.