ZEE Business
ZEE BUSINESS
हिंदी में पढ़ें  हिंदी में पढ़ें
Live TV
Live TV
  • Home
  • Budget 2023
  • Markets
    • Stocks
    • Global Markets
    • IPO
    • Companies
    • Currency
    • Commodities
  • My Money
  • Calculators
    • Income Tax Calculator
    • Home Loan/EMI Calculator
    • Mutual Fund Returns Calculator
    • Personal Loan Calculator
    • Car Loan Calculator
    • SIP calculator
    • Lumpsum Calculator
    • SWP Calculator
  • Videos
    • M Se Market
    • Jeb Zindagi Zaroorat
    • Light Camera Stocks
    • Tech Takes
    • Big Bulls Ka Nishana
    • Paisa Wasool
    • Commodity Ke MrityunjayMantra
    • The Right Property Show
  • Economy & Infra
    • Policy & Initiatives
    • Agriculture
    • Telecom
    • Aviation
    • Railways
    • Retail
    • Roadways
    • World Economy
  • Exclusive
    • Wealth Guide
    • Interviews
  • Auto
    • Cars
    • Bikes
    • Electric Vehicle
    • Commercial Vehicles
  • Tech
    • Mobiles
    • Gadgets
    • Reviews
    • Tips and Tricks
    • Apps
  • Start ups
    • Funding
    • Appointments
  • Real Estate
    • Home Buyers
    • Builders
  • Axis MF
  • Trending
    • Entertainment
    • Politics
    • Lifestyle
    • Travel
    • Sports
    • Viral
    • Education
    • Jobs
Read in App
Business News » World News

Private equity sees opportunity for growth in China's logistics sector

  • Twitter
  • Facebook
  • Linkedin
  • whatapp
  • View in App
Private equity sees opportunity for growth in China's logistics sector
An employee works at a JD.com logistics centre in Langfang. Image Source: Reuters

When US private equity heavyweight Warburg Pincus started looking at China's logistics sector in late 2009, there were more modern warehouses in Boston than in the whole of the world's most populous country.

But as Chinese consumers embarked on an online shopping spree, demand has soared from appliance makers, express delivery firms and e-commerce companies such as Alibaba Group Holding and JD.com Inc, far outpacing supply and prompting a parallel binge in investment in warehouses and logistics businesses.

Deep-pocket investors including Carlyle Group LP, Canada Pension Plan Investment Board (CPPIB) and Warburg Pincus have splashed $12 billion on the sector in China since 2013, says real estate consultancy Jones Lang LaSalle.

"The thinking was even if it didn't necessarily scale to the size we were anticipating, we had a good sense that while Boston is a pretty decent size city in the US, China should have far more modern warehousing space over the longer term," said Jeffrey Perlman, who heads Southeast Asia at Warburg Pincus and also focuses on real estate investments across Asia Pacific.

"We were taking that directional bet that, with this transformative shift from a manufacturing-based economy to a service, consumption-based economy, ultimately you need to store the goods somewhere."

Although China's economy expanded in the second quarter (Q2) at the slowest pace since the global financial crisis of 2008-09, online shopping revenues have soared and are expected to double to 7.5 trillion yuan ($1.13 trillion) in 2018 from last year, consumer and internet consultancy iResearch estimates.

Online retail as a percentage of total retail in China has grown steadily to 12.6%, and is forecast to reach 17% in 2018, according to iResearch and China's National Statistics Bureau.

By comparison, US e-commerce sales accounted for 8.1% of total sales in the second quarter (Q2) of 2016, underscoring the fast adoption of online shopping in China, where consumers with rising incomes use smartphones to order everything from appliances and clothes to flowers and pizza.

India, another emerging Asian giant with a burgeoning middle class, has seen a similar trend and is also attracting investment in warehouses.

"These changes are structural changes," said Jimmy Phua, head of real estate Asia at CPPIB. "Certainly competition has been increasing. What we know, what we see is no secret, the world sees it as well. Other investors, other managers, can see that in this sector there will be sustained growth."

Rents Pressured

China's logistics market reached 1 trillion yuan in 2015, led by an increase in so-called storage spending that includes warehousing, processing and packaging of goods.

CPPIB has committed $2.6 billion to China's logistics market, including a $1 billion investment unveiled late in 2015 in a venture with Goodman Group.

Warburg Pincus-backed e-Shang has grown into one of the largest logistics providers for e-commerce companies including JD.com, with Thomson Reuters publication IFR saying the company could raise $1 billion in a 2016 initial public offering (IPO).

To be sure, the surge in investments has created an oversupply of warehouses and pressured rents, particularly in smaller cities, while increased competition from new players has made it harder to secure land in top-tier cities such as Beijing and Shanghai, analysts and investors said.

Still, investors expect the impact on rents will be less severe for large, more modern warehouses that have been the focus of private equity firms, while the oversupply of logistics space will likely be limited to lower-tier cities.

Real estate consultant DTZ Cushman & Wakefield forecasts warehousing space will grow 10% a year through 2020.

"E-commerce particularly is growing at rates that are significantly higher than the overall gross domestic product (GDP) growth, that's a huge demand driver for the logistics sector," said Jason Lee, Carlyle Group LP's head of Asia real estate.

Carlyle-backed China Logistics Property Holdings Co, which just went public in Hong Kong in a $459 million IPO in July, is spending 2.1 billion yuan in 2016 to add some 1.1 million square metres (11.8 million square feet) of new warehousing space to its portfolio this year and build new warehouses that will be completed in 2017.

With planned investments of $1.8 billion through 2019, the company expects to build 34 new logistics parks, adding 4.5 million square metres of space, according to its IPO prospectus.

Hong Kong-based real estate private equity firm Gaw Capital Partners, which joined last year with logistics company Vailog China to develop and buy warehouses, is raising a second investment vehicle after making a $300 million push last year.

The second vehicle, with co-investments from sovereign wealth funds and pension funds, will close in the next three to six months and will be at least the same size, said Kenny Gaw, president and managing principal at Gaw Capital.

"I can't predict how the growth of e-commerce will be in the next 10 years, but it's still one of the fastest growing sectors in China," Gaw said. "And China will remain the biggest e-commerce market in the world."

Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.

TAGS:
China Logistics SectorEconomyE-commerce MarketUnited States (US)Carlyle Group LPCanada Pension Plan Investment Board (CPPIB)Alibaba Group HoldingJD.com IncChina Logistics Property Holdings CoWarburg Pincus
Written By: Reuters
Updated: Wed, Aug 24, 2016
09:38 am
Hong Kong , Reuters

LATEST NEWS

Odisha Health Minister Naba Das shot by cop; sustains severe injuries

Market Capitalisation Update: Seven of top-10 BSE listed firms shed Rs 2.16 lakh cr; SBI, HDFC Bank among top losers

Adani Group rules out changes in price, dates of FPO; company confident offer share sales going through

NTPC Dividend 2023: State-owned power generation company to pay Rs 4.25 dividend; check record and payment date

Budget 2023: Govt may not come up with fresh divestment plans; likely to focus on privatisation of already announced PSU firms

India vs New Zealand 2nd T20I Match Live Streaming - When and Where to watch IND vs NZ live today

OPPO Reno8 T 5G: Check expected price in India, launch date, specifications and other details

Donald Trump opens 2024 US presidential run, says more committed than ever

Piyush Goyal calls for creation of network of mentors, investors, entrepreneurs to strengthen start-up ecosystem

Google Doodle celebrates Bubble Tea - check history, experiment, other details of this tea

  • India News
  • World News
  • Companies News
  • Market News
  • Personal Finance News
  • Technology News
  • Automobile News
  • Small Business News
  • Income Tax Calculator
  • Live TV
  • Videos
  • Photos
  • Author
  • Rss Feed
  • Advertise with us
  • Privacy Policy
  • Legal Disclaimer

Latest Trending Updates

  • EPFO
  • Budget 2020
  • Income Tax Return
  • Auto Expo 2020
  • Home Loan
  • Business News

Trending Topics

  • Income Tax
  • income Tax Calculator
  • 7th Pay Commission
  • Reserve Bank of India
  • GST
  • Latest Business News

Follow us on

zeebiz
zeebiz

Partner Sites

  • Zee News
  • Hindi News
  • Marathi News
  • Bengali News
  • Tamil News
  • Malayalam News
  • Gujarati News
  • Telugu News
  • Kannada News
  • DNA
  • WION
© 2023. India Dot Com Private Limited. All Rights Reserved.
LIVE TV