China's industrial real estate market is likely to see massive growth in the coming years, driven by strong manufacturing and retail activities, according to industry players and consultants.

Industrial real estate, which generally includes logistics, industrial parks and business space, is increasingly emerging as a new investment hot spot in China's real estate market, they said at a recent industry forum.

"China's industrial real estate market is still in its infancy," Leonard Ng, managing director of leading real estate services firm CB Richard Ellis in Shanghai, said at the China Industrial Real Estate Summit, a two-day conference held in Shanghai recently.

"Most of the investors (in the industrial real estate market) and facilities are currently clustered in the country's eastern and coastal areas," Ng said.

"But about 800 million people are living in China's vast central and western region where such logistics infrastructure is to be improved, which points to huge potential in this market," he said.

Logistics market

In particular, China's logistics market, which includes freight, warehousing and distribution facilities, is set to grow massively in the coming years, driven by dynamic retail activities, analysts at the conference said.

China's logistics market is expected to grow by almost 30 percent a year in the next three to four years, according to Trent Iliffe, director of global real estate money management and services firm Jones Lang LaSalle's Industrial Property team in China.

The booming manufacturing and retail sectors, Iliffe said, would serve as major engines for the expansion of the logistics industry in China. But he said the retail sector would be the biggest driver of logistics expansion.

The number of foreign retailers in China has more than tripled from 314 in 2004 to 1,000 by the end of 2006, according to Iliffe.

At the same time, retailers such as Wal-Mart, BestBuy and B&Q have all set ambitious expansion goals in China and are frantically expanding their retail networks in the country, creating huge demand for logistics needs, Iliffe said.

For example, Gazeley Properties Ltd, the logistics unit of Wal-Mart, recently burst onto the scene in China, building a 42,000-square-meter distribution center in the port city of Tianjin. It will not only service Wal-Mart but also other retailers and manufacturers, the company said.

And the booming manufacturing, especially automotive, industry also contributed significantly to the take-off of China's logistics industry, Iliffe said.

The booming economy and manufacturing in China presented "many opportunities" for industrial property developers, said Chong Siak Ching, president and chief executive officer of Ascendas, Asia's leading industrial real estate developer.

Industrial parks

China's emerging business process outsourcing sector, and other IT services, Chong said, would create demand for industrial properties such as IT and technology parks.

The government's macro controls on the real estate market in recent years, which are mainly focused on residential housing, have also made industrial property development a lucrative new hot spot for developers and investors, analysts said.

Although the Ministry of Land and Resources already has policies regarding the supply of land and industrial property prices, local governments are much more relaxed about this aspect, said Zhou Jianchun, deputy director of the Institute of China Land Survey and also a member of the China Land Society.

"They (local governments) usually auction the land designated for industrial property development at much lower prices and always set loose limits on land supply in this regard, which has made the returns on industrial property development higher than other commercial property development activities," said Zhou.

In Shanghai, the rental yield from industrial property has reached 7.5 to 10 percent higher than the 6.5 to 9 percent achieved in commercial property rentals at the end of last March.

(China Daily 03/28/2007 page15)