Leasing activity remained steady in Q2 2019, supported by domestic consumption-backed 3PLs and retail occupiers. However, ongoing relocations by e-commerce platforms to self-built facilities, as well as several retailers moving to customised warehouses, weighed on net absorption. The quarter also saw several cases of surrender leases in Eastern China including Suzhou, Nanjing and Hangzhou.


The US-China trade conflict has so far had only a limited impact on manufacturers’ warehousing demand. However, sluggish vehicle sales in the first few months of this year and the weaker outlook for H2 2019 has prompted a few cost-driven relocations by automotive and automotive parts manufacturers in Western China.


Around 700,000 sq. m. of new warehouse space was completed during the quarter, mainly in Tianjin, Wuhan and Shenyang. Vacancy in tier II cities rose to 13.7%, while that in tier I cities edged down to 6.5% due to the lack of new supply.


Space availability will continue to improve in the coming months, with around 3.4 million sq. m. of new warehouse spaces due to arrive in H2 2019. However, leasing activities in new builds are expected to be hindered by the introduction of a new tax revenue threshold for occupiers and the ongoing exodus of e-commerce tenants.   


Logistics rents were flat in Q2 2019, with year-to-date growth registering 1.3%. Rental growth this quarter was confined to Beijing, Guangzhou and Shenzhen, while cities in Western China experienced a mild correction, falling by 0.8%. Prospects for rental growth are limited for the remainder of the year as more landlords have softened their stance and are maintaining rents at current levels and/or offering more favourable leasing terms. CBRE advises occupiers to capitalise on this opportunity to engage in lease negotiation/expansion.