CBRE Korea: ‘E-commerce and third-party logistics are top demand drivers in logistics market’

- Greater Seoul Logistics Tenant Profile report suggests strategic positioning of logistics assets crucial as logistics demand increases rapidly

December 3, 2020 (Seoul, Korea) – Occupier demand for logistics facilities in Greater Seoul has surged this year as COVID-19 has accelerated demand from e-commerce platforms and third-party logistics (3PL) providers, according to CBRE Korea’s Greater Seoul Logistics Tenant Profile report.

The rise in demand is being accompanied by a sharp increase in supply, with around 1.8 million sq.m of new logistics facilities due to be completed this year – almost double the annual average over the past five years – and 5.8 million sq.m of new stock scheduled to come on stream in 2021-2022. As the supply of new logistics facilities increases rapidly, investors and developers must position their assets strategically to ensure they command an advantage over competing properties.

The report provides a comprehensive overview of the market by analyzing key property and tenant features in 75 logistics facilities in the Greater Seoul area.

Don Lim, Managing Director of CBRE Korea, said, “Gaining a comprehensive understanding of the composition of logistics leasing demand and supply will help minimize vacancy risk associated with future large-scale logistics supply in the Greater Seoul area. Landlords can effectively operate logistics assets and developers can develop logistics facilities best suited to tenant requirements, as well as evaluate the redevelopment potential and suitability of older properties.”

The research showed that 3PL and e-commerce are the top demand drivers in the logistics market. Third-party logistics accounts for 50.2% of total occupied space, followed by e-commerce platforms, which utilize 24.6%. Collectively, the two industries occupy three quarters of leasable Grade A logistics space in Greater Seoul, underlining their market dominance. Demand for e-commerce platforms is strongest in areas less than 30km from Seoul including Goyang, Gimpo, Namyangju and Bucheon. Tenants in the e-commerce industry occupy around 65% of total space in these areas. In areas 30-60km from Seoul, which includes the cities of Yongin and Icheon, 3PLs occupy 64% of space. In Icheon and Yongin, which are regarded as traditional logistics hubs, 3PLs occupy 75% of total space. The footprint of F&B tenants in these cities is also significant.

The research found that assets built six years ago or earlier are mainly leased to 3PL companies, which occupy 56% of gross floor area (GFA), with e-commerce platforms taking up just 9.5% of GFA. In contrast, the e-commerce industry occupies a far larger proportion of space in properties built less than five years ago, taking up 32% of GFA, with 3PLs accounting for 48%.

The number of tenants occupying a space less than 6,600 sq.m (2,000 pyeong) was found to be the highest, reflecting high levels of demand from a broad range of industries for relatively small spaces. The number of tenants leasing an area of more than 66,000 sq.m (20,000 pyeong) accounted for roughly 10% of total, underlining growing demand from large space users, primarily e-commerce platforms.

Claire Choi, Research Director at CBRE Korea, said, “Numerous e-commerce companies consolidate and relocate multiple scattered distribution centers into one or several very large facilities to enhance efficiency. Third-party logistics companies are making efforts to improve their efficiency and shipper preferences through master leases that rent entire logistics centers.”

Korean companies dominate the logistics leasing market in Greater Seoul, occupying 93.8% of total space. However, some industries, such as manufacturing, pharmaceutical and fashion, have a higher proportion of foreign tenants than others.

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