Seoul, October 6, 2014 — South Korean logistics sector has recorded steady growth in recent years, but industry standards still lag well behind other developed markets. To remedy this, the government has introduced a number of policies designed to support the more rapid development of the sector. CBRE launches its Evolution of the South Korean Logistics Market special report, which examines the impact of these new government policies and provides an outlook for the occupier and investment markets.
New Regulations Boost Supply
In 2001, the Korean government adopted a logistics market master plan to grow the logistics industry’s total revenue, as well as increase development of logistics facilities across the country, over the next 20 years. Over the past few years a number of additional policies have been announced to supplement the overall master plan. Two of the main policies were released in August 2013 and August 2014 and are intended to accelerate the development of the domestic logistics industry.
“Due to the gap between South Korea’s high GDP and lower Logistics Performance Index, the government is looking to reduce this gap with the introduction of the new reforms. We believe these recent additional policies will help make the government’s end goals more achievable with the expected growth in the logistics market these measures will generate. In addition, the new policies will have a positive impact on the logistics occupier market, as they will open up more business opportunities for 3PL companies and increase the demand for logistics space,” said Justin Kim, head of Global Research and Consulting.
In August 2013, in a move designed to expand the range of companies operating in the 3PL industry, the government refined a number of requirements related to firms looking to register as a certified logistics company. This included removing rules giving minimum requirements on revenue which in theory should make it easier for smaller companies to register.
Meanwhile, in August 2014 the government unveiled its Logistics Service Improvement Plan—a strategy which in part aims to increase the logistics industry’s total revenue by nearly 50% between 2012 and 2017. The main projects under the most recent August 2014 plan involve spending of around KRW1 trillion (US$941 million) on new logistics facility projects in the coming years. In addition, The Free Trade Zone (FTZ) at Incheon International Airport will be developed by way of establishing a global delivery center. Authorities have also pledged to increase the number of parcel trucks serving the logistics sector by approximately 12,000 in H2 2014 following the addition of 11,200 trucks in H2 2013.
Potential for ‘Massive Growth’; Investor Activity Strengthening
The government’s target is for the logistics industry’s total revenue to increase at a rate of 8% per year for the next five years compared to an annual growth rate of 6% over the past five years. The facility development plan is therefore highly likely to come to fruition within the next 5-10 years. The expected growth in the total logistics facility area in South Korea will be approximately 30% and will be mainly concentrated around the Seoul/Gyeonggi and Busan/Gyeongnam areas.
Between 2008 and 2012, around 11 million sq. m. of new logistics space was developed in line with the government’s master plan. This new supply now accounts for nearly 50% of total logistics space in the country. In 2012, the logistics industry’s total revenue equaled approximately KRW92 trillion. In 2017, the total revenue is expected to amount to KRW135 trillion.
“With the implementation of the new master plan and the higher demand for quality logistics structures, the South Korean logistics market shows the potential for massive growth. Especially with the newly-active third generation investors, both capital value and rent levels will begin to grow at an even faster pace in the future,” Mr Kim said.
“The South Korean logistics industry is emerging as an attractive sector for investment for a number of reasons. The industry continues to expand steadily, supported by the government-backed growth plans, while large multinationals are expanding their operations and have sizable logistics facility requirements. The capital appreciation of logistics facilities is expected to continue and cap rates are maintaining a wide gap ahead of other asset classes, such as offices,” Mr Kim added.
Predicting the future of the Korean Logistics Market:
- CBRE expects that the average transaction price for dry logistics facilities will continue to rise at approximately 5-9% per annum, as it has for the past eight years
- As high quality supply is completed, CBRE expects that rental growth will increase from approximately 1.0% per annum to 1.5% per annum
- CBRE expects that overall the South Korean Logistics market will be stable in the long term (10+ years)
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