Hitting new heights: China's multi-storey warehouses

China’s booming e-commerce market has led to soaring demand for warehouse facilities. As land in major urban centres becomes scarce and expensive, developers are setting their sights higher by adding floors to their logistic centers.

February 06, 2017

Multi-level warehouse facilities – be they drive-up or equipped with elevators – are proving to be a bottom-line solution for developers looking for more value on their land purchases.

“These types of facilities appeal to logistics companies because they offer practical business solutions, especially for retail and e-commerce companies,” says Stuart Ross, JLL China’s Head of Industrial.

Some of China’s biggest logistics companies are taking a step upwards. Australia’s Goodman group, the second-largest logistics developer in China, launched an ultra-modern 110,000 square metres (sqm) multi-storey warehouse in Shanghai’s Qingpu district in April, which quickly clocked up 97 percent occupancy.

The huge growth in e-commerce could guarantee a future for multi-level facilities in China. Chinese internet research company iResearch says the compound annual growth rate of online shopping is likely to be 24.7 percent until 2027, while the Chinese logistics industry is predicted to grow by double digits annually over the next few years.

Retail chains head upwards

Ross points out that retail chain and e-commerce firms with smaller packages will be more agreeable to upper-floor space.

“E-commerce tenants have different needs. They are likely to be moving smaller packages, thus storing their goods on upper floors with elevator access is no great hindrance,” he explains. “Bulkier items, on the other hand, are more suited to ground levels, unless the warehouses have drive-up facilities. However, drive-up facilities can add greatly to the cost of development.”

“Given the tremendous growth in the retail chain and e-commerce industries, these facilities present a lucrative investment for developers as they can get more value out of expensive land,” Ross adds.

According to JLL data, three major multi-storey projects in Shanghai are running at 100 percent occupancy: U.S.-based Blackstone Group’s two-level 85,000sqm Songjiang facility, a three-level 46,229sqm Minhang project developed by Italy’s Vailog and Singapore-listed Global Logistics Properties’s two-level 65,000sqm warehouse in Shihudang.

In the meantime, New York-listed Prologis set up a 99,200sqm multi-storey logistics centre at the Beijing Airport Logistics Park, which was fully leased upon completion in the first quarter of 2016. The strong take-up is indicative of the situation in the city as a whole, with demand pushing vacancy rates to a three-year low in the same period.

Cheaper land outside the big cities

However, outside China’s first-tier cities, where the availability of land has helped to keep the cost of single-storey warehouses lower, the concept of multi-level warehousing hasn’t taken off.

Goodman is an example. After its successful launch of multi-level facilities in Shanghai, it went low profile for its Xindu North Industrial Park development in Chengdu in central China, opting for four single-storey buildings instead. Three customers grabbed a combined space of 71,700sqm, fully pre-leasing the development, which will be completed later this year.

However, with land prices expected to climb in second and third-tier cities, especially as the housing market recovers, and with ecommerce growing by more than 33 percent last year, the growing popularity of multi-storey warehouses in places like Shanghai may be giving China a preview of the future.

Future growth

The future in multi-level warehousing is very much dependent on land prices and availability outside major cities such as Beijing and Shanghai, according to Ross.

“If prices for land continue to increase in second- and third-tier cities, there could be a tipping point where multi-level warehousing becomes economically more viable,” he says. “And because of the phenomenal growth of e-commerce with its small packaging requirements, leasing second- and third-level warehousing space will become much more commonplace.”

Given these factors, the trend of successful multi-storey logistics facilities in Beijing and Shanghai may well be one that plays out in the rest of the country over the next decade.

“As the market evolves, those who stand out from the pack will be the ones who meet the changing needs of their customers,” says Ross. “The first movers will be the winners.”