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Logistics Marketbeat Report

Hiroshi Tsuruoka • 30/07/2020

International Trade Stagnated Amid COVID-19 Outbreak
Projects delayed from earlier in the year are now entering the market, with 362,000 sq m of new supply added in Q2. Notable completions included Samsung Tower and Evergrande Center in the CBD, Jinjia Tower in Financial Street, and Poly Metropolis and Hua Insurance Innovation Center in Tongzhou Canal Business District. Consequently, the vacancy rate rose 2.4 percentage points q-o-q to 16.2% overall, and 1.9 percentage points to 9.9% in the core submarkets. Pent-up leasing activity from the end of 2019 and Q1 2020 has gradually emerged in Q2. The economic damage from the pandemic means some tenants are still surrendering leases or downsizing, but, overall, pre-leasing of new projects and delayed leasing transactions achieved higher net absorption in Q2 compared with Q1, at 35,800 sq m citywide and at 50,523 sq m for the core submarkets.

Nest-Dweller Consumption Gives Logistics Market a Tailwind
The logistics market is enjoying a tailwind, with nest-dweller consumption driving a rise in e-commerce and fresh food deliveries during the pandemic. Demand is high, although the prevailing labor shortage means that delivery delays and other challenges remain. Nonetheless, the logistics environment is expected to be improved ahead, with a major developer to announce new last-mile facility developments. In the apparel industry, warehouse demand is on the rise, partly due to a decline in in-store sales, and inventory storage needs. While E-commerce channel sales performance is gaining momentum in the sector the supply of logistics facilities is not keeping pace. Prime rents at Kanagawa Inland rose to JPY5,100 in Q2, up 2.0% q-o-q and 6.3% y-o-y. Asking rents were up across the market in the area, with bottom end rents growing 4.9% y-o-y. In Fukuoka prime rents jumped 9.4% y-o-y to JPY3,500, due in part to new supply. Osaka Inland’s prime rent also rose by 6.0% y-o-y, reflecting its growing importance as a logistics hub. Sourcing for data center sites is also accelerating, making industrial land acquisition even more challenging.

Growing Momentum to Introduce Robotics to Solve Labor Shortage
The logistics facility sector has been challenged by rising e-commerce demand during the pandemic period. As well as the chronic labor shortage, there are now increasing risks of temporary operational suspensions due to outbreaks among facility workers. In response, some firms are accelerating their efforts to automate material handling, from packaging to indoor short-distance transportation, with robots. Logistics facility owners who have been among the first to innovate, such as providing services for tenants to install robotics technology, will reap the rewards.

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