Mainland China’s demand for warehouses plunges as Singapore’s surges: Knight Frank

Rents for industrial spaces across much of Asia-Pacific continued on an upwards trajectory in the first half of 2024, but mainland China saw a sharp plunge as the sluggish economy weighed on demand, according to a report by Knight Frank.

Southeast Asia saw the biggest rent increases, with Singapore the best-performing city, the property consultancy said on Wednesday. Rents for logistics properties in the Lion City increased by 10.8 per cent year on year in the first half, riding on the back of strong factory activity.

Logistics rents held steady or increased in most of the 17 cities Knight Frank tracks, but slumped in mainland China as weak consumption and exports reduced demand for warehouses.

“While exports have been a positive spot for the Chinese mainland, they have to be considered against the macroeconomic backdrop,” said Christine Li, Knight Frank’s head of research for Asia-Pacific. “Consumption and investment have been weak, and the broad economic slowdown has weighed on the demand for logistics warehousing space in Shanghai and Beijing.”

Rents for logistics spaces plunged 15 per cent year on year in the first six months in Shanghai and 8.6 per cent in Beijing as tenants chose to surrender existing leases and downsize.

“Vacancies in both [Shanghai and Beijing] have surged to over 20 per cent, compelling landlords to cut rents and shorten leases to compete for tenants,” the report said.

Meanwhile, 17 million square metres of new logistics supply is set to flood the market in Shanghai and Beijing in coming months. Knight Frank expects rents to continue falling as vacancies rise in both cities over the next year.

China’s soft demand dragged on overall Asia-Pacific rental growth. Rents for industrial spaces grew by an average of 2.4 per cent year on year in the first half, a sharp deceleration from 6.2 per cent growth a year ago.

“It remains clear that logistics occupier markets are on the whole transitioning to a more neutral state from one favouring landlords,” Li said.

Vietnam’s southern economic region and Manila rounded off the top three locations in Asia-Pacific, with year-on-year rents for industrial space gaining 9.9 per cent and 9.1 per cent, respectively, in the first half, driven by infrastructure development and growth in online retail.

Hong Kong ranked seventh, with first-half industrial rents rising 3.3 per cent from a year ago.

In Singapore, the purchasing manager’s index has risen for 11 straight months through July.

“International manufacturers continue to see the island as a potential manufacturing location to expand operations,” the report said.