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Logistics and Storage Businesses Seek More Industrial Land in Beijing

With its moment in the Olympic sun rapidly approaching, Beijing’s economy continued growing at a blistering pace of 12.3 percent in 2007, with a gross domestic product (GDP) valued at more than 900 billion yuan (US$126 billion).

Growth of 17 percent year-on-year was also reported in the capital’s fixed assets investments which grew to 395 billion yuan (US$55.3 billion) in value.

All of this came despite a slowdown in the second half of 2007 in the total value of industrial exports, which began to respond to weakening American financial markets and the appreciation of the renminbi in relation to the US dollar. Yet total value of exports in 2007 still grew by 26.3 percent year-on-year.

The Central Bank is currently planning a more aggressive tightening of monetary policy, which should ensure stabilized future growth in all sectors of the economy and prevent “entrenched inflation.”

Regulatory policies regarding changes in sales and procurement procedures of industrial land will be released by the Ministry of Land and Resources in spring 2008. These regulatory policies are expected to establish guidelines for the auctioning of and bidding for industrial land, and will establish future price minimums for industrial plots. A formalized bidding process for land and clearly stated minimum price levels are expected to lead to improvements in market transparency.

Average land prices and rental rates are expected to increase as a result of the future set minimum price standards. However, for industrial zones whose current average achievable land price is above the set minimum, the effects of this new price floor should be minimal. New auctioning guidelines for Beijing will also restrict certain industries from participation in future auctions. Industries facing possible restriction include those the central government considers likely to cause environmental damage, those with a record of violating environmental standards and regulations, or those that consume excessive volumes of natural resources in their production processes.

Demand

Today, logistical and storage businesses are increasing their demand for industrial space, especially a short-term demand for logistics warehousing spawned by the upcoming Olympic Games. But there is also a long-term demand for logistics warehousing, which is supported by several trends in the economy. These trends are: an increase in consumer spending, further development of domestic retail markets, and domestic retailersí decision to outsource their logistics needs to third-party logistics firms (3PLís). The net effect is an increase in demand for logistics warehousing by 3PLís. Demand for standard industrial premises has increased, as the central governmentís future plans for industrial development have been re-directed to focus upon the development of research and development (R&D), modern manufacturing, and biomedical and biopharmaceutical industries. An increasing demand for office units located within the confines of industrial zones has resulted in the construction and future planning of these kinds of units by developers. The Daxing CBP and Tianzhu Export Processing Zone have constructed or are in the process of constructing such units. The Max Business Park near the Tianzhu Export Processing Zone, for example, is being welcomed by the market.

Investment Transactions

A strong demand for industrial land exists in the market. However, supplies are tight in the market. Thus, supply curbed demand and decreased the investment transaction volume during the past two quarters. At the moment, most developers are sitting on limited supplies of land.

Supply

About 156,000 square metres (sq.m) of standard industrial property came onto the market in the second half of 2007. Most of this new supply was logistics warehousing (96, 000 sq.m), with total stocks rising to 1.19 million sq.m. The logistics submarket is establishing its prominence in the Beijing industrial market. Over the past year and a half, major players such as ProLogis have already made large investments into the Beijing Airport Logistics Park (BALP) and Tongzhou Logistics Parks. Warehouses of ProLogis in BALP will be operated as the Beijing Olympics Logistics Center during the Olympic Games.

Outlook

The Beijing industrial market is in a period of transition. The short-term focus will be on logistics facilities used for the distribution of goods expected to enter the city during the Olympic Games. Yet these market forces are expected to remain in the long run as the volume of domestic consumption of retail goods continues to increase. The long run industrial focus may stray from standard manufacturing warehouse facilities, and find itself redirected toward R&D, logistics, pharmaceuticals, and modern manufacturing. This change in focus reflects the central government’s long term plans for slowly erasing the image of China as the “The World’s Workshop,” replacing this image with one marked by high-tech industries, specialized services, and domestically manufactured exports which can be competitive in the global market.