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E-commerce sales growth set to be highest in Asia Pacific with major benefits for real estate market

Real estate plays crucial role in rapidly-evolving retail strategies, says report by Jones Lang LaSalle

As online retail sales are expected to exceed US$1.2 trillion globally this year*, retailers are under pressure to decide where, when and how packages should travel from dock to doorstep. With Indonesia, China and India set to experience the highest rates of B2C e-Commerce sales growth by 2017, a new report from Jones Lang LaSalle, highlights the crucial role that the logistics property sector will play in Asia Pacific and how it must adapt to changing consumer demand.

Asia Pacific is home to four of the top 10 countries with the highest internet users globally, yet, developing economies currently lag behind developed markets in terms of their e-commerce ‘ecosystems’. As this gap closes, they are predicted to see far stronger e-commerce sales growth than the more mature markets, rapidly changing the e-commerce landscape over the next 5 years and requiring a transformation in the way goods are purchased, stored and delivered.

Chart:Growth in B2C e-commerce, 2013-2017(source:eMarketer)

Michael Fenton, Head of Industrial, Jones Lang LaSalle Australia commented, “The structural changes in the e-commerce landscape will be especially prevalent in Asia Pacific and developers in the logistics property sector must keep pace in order to maximise opportunities in the future. As more and more retailers establish their own websites while established retailers look to improve distribution beyond main tier one hubs, we are seeing increased demand for warehouses and modern logistics capabilities.”

Emerging markets, emerging e-commerce trends

In emerging markets, e-commerce supply chains are evolving in highly divergent ways, influenced by regulatory, economic and cultural factors: 

• In China, e-commerce is gathering increasing momentum. By 2017, it will be the second largest B2C e-commerce market, second only to the U.S, while the country’s total e-commerce market value is set to reach US$ 1 trillion by 2020. The rapid growth of B2C is driving demand for distribution space, both from pure online retailers establishing new warehouse networks and from bricks and mortar retailers who have expanded online and now must upgrade and expand facilities to accommodate increased demand.

Stuart Ross, Head of Industrial for China, Jones Lang LaSalle said, “E-commerce has already been hugely beneficial to the logistics property sector in China. The first wave of e-commerce warehouse space was concentrated in tier-one cities such as Beijing, Shanghai and Guangzhou, but since 2011 online brands and retailers are looking to expand, setting up distribution centers in emerging inland retail markets as well.”

• In India, online retail accounts for less than one percent of total retail spending but is estimated to grow by 24 percent by 2017. E-commerce-related warehousing is designed to serve tier-one cities and the country’s multiple tax structure has led to decentralized warehouse networks with small state-based facilities rather than larger, more efficient operations. However, the soon-to-be implemented Goods and Services Tax (GST) will encourage consolidation of distribution networks and will fuel demand for larger distribution centers.

Mature market e-commerce: convenience driving logistic change

In the more mature markets of Asia Pacific, online retail sales already account for 5 to 15 percent of total retail spending with South Korea boasting one of the highest shares in the world at 13 percent. However, the e-commerce landscape is also changing for these markets, driving major changes in demand for distribution property. Retailers will be required to adopt an omni-channel strategy which integrates sales channels so that consumers can choose the most convenient way to order, receive and return their purchases.

Michael Fenton explains, “Consumers in Asia Pacific’s more mature markets have come to expect an omni-channel experience which supports full convenience and, in the next five years, we’ll see this transform real estate in these markets. For example, we have seen a strong take up of e-commerce in Australia and, as the sector matures, ‘specialized’ or ‘purpose-built’ real estate will become more common. We’ll start to see an emergence of multiple logistics hubs closer to major population clusters to meet delivery time expectations and changing consumer demand.”

Michael concludes, “In terms of e-commerce volume, we expect emerging markets to eventually surpass the more mature markets in Asia Pacific and globally, as a result of their rapidly expanding populations. As more and more consumers embrace e-commerce as a safe and convenient way to purchase goods, it will be essential for developers, brands and operators in both developing and more mature markets to stay ahead of trends and invest in logistics models that will expose new products to new populations.”