LAST MILE OPPORTUNITY IN KOREA - Increasing e-commerce demand requires more logistics centers for last mile delivery - Colliers International
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COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
Judy Jang
Associate Director | Research | Korea
+822 6325 1918
judy.jang@colliers.com
LAST MILE OPPORTUNITY IN KOREA
Increasing e-commerce demand requires more logistics centers for last mile delivery
COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
Summary & Recommendations 20% annual KRW6 60%
ecommerce million increase
As the types and penetration of e-
commerce diversifies, the use of logistics
growth per pyeong from 2018
real estate is changing. Colliers’ expects The Korea Internet and Security Average distribution Logistics center transaction
new investment opportunities both in Agency expects 2020 e-commerce center transaction price volumes increased to KRW2.4
volumes in Korea to grow by (USD1,550 per sqmeter) trillion (USD 2 billion) in 2019,
logistics centers near major cities and
KRW159 trillion YOY more than a 60% increase YOY
large suburban logistics centers further
from the city center. According to the Korea Internet and Security Agency (KISA), in 2019 domestic e-commerce volumes in
Korea were KRW133 trillion (USD107 billion), and KISA is expecting 2020 volumes to top KRW159 trillion
> The logistics and distribution market is (USD128 billion), recording 20% annual growth on average.
changing to focus on delivering more
The e-commerce and logistics sectors are proving resilient considering the Covid-19 pandemic. This sector
products but a smaller volume of each. will likely offer major long-term opportunities to investors and landlords as e-commerce adoption is
Companies should update their increasing rapidly in the face of quarantines and social distancing.
strategy and collaborate with
Especially, the recent increase in fresh food delivery contributed to an increase in demand and investment
companies specialized in last mile for both cold chain logistics and dry logistics centers. Institutional investors, who have focused on dry
logistics infrastructure for these lower logistics centers in the past, are now shifting their interests to cold chain facilities.
volume but multi-product transactions.
Recently traded logistics centers have seen cap rates was about 5%, due to harsher competition and
> Real estate investors should focus their increasing prices for available development sites.
interests in fourth-generation logistics As the Covid-19 pandemic subsides, we expect these factors to support each other to increase the volume
technology to target B2C tenants, of industrial transaction in H2 2020 and into 2021.
diversifying beyond traditional logistics
tenants.
Institutional Investors’ logistics investments in the Seoul metro area
> We expect demand for city center 2,500
logistics infrastructure to continue to
grow, however securing appropriate 2,000
Billion (KRW)
licensing is difficult and restricts the
1,500
supply of new logistics centers in urban
areas. Investors should focus on 1,000
redevelopment and integration of
outdated small and medium-sized, 500
logistics facilities.
-
2013 2014 2015 2016 2017 2018 2019
Source: Colliers International, RCA
2
COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
SEOUL’S MAJOR LOGISTICS REGIONS
Accessibility to expressways has been the key point in locating distribution centers. Distribution centers in metropolitan areas were mostly centered around
the first expressway in Korea, the Gyeongbu Expressway. In order to take advantage of increasing deliver volumes, locating distribution centers close to
metropolitan areas is essential, and this balance of expressway access and proximity to metropolitan areas to drive distribution center siting in the future.
Percent of logistics transactions by area (2013 – 2019) Rent level
If the region is closer to Seoul and expressways,
Yongin-Icheon rent for logistics facilities gets higher.
Most logistics investments are Gyeonggi-do KRW28,000 per py
concentrated in this region. Due to (USD 7.26 sq metre per month
the popularity of area, development Incheon KRW30,000 per py
led to oversupply. USD 7.78 per sq metre per month
Ansan-Pyeongtaek Seoul / KRW40,000 per py
This region is the current hot spot Gimpo USD 10.37 per sq metre per month
for logistics investment due to low The rents of newly, high-tech logistics centers
land costs and a low supply of Il-san tend to increase, while rents of aging facilities
logistics centers. tend to decrease, leading polarization of rents
Seoul by age of facility and region.
Incheon-Bucheon-Gimpo Kimpo
Institutional investors’ interest in the Jungbu
region is increasing due to a lack of 3% Expressway
Incheon Gyeongbu
new supply and increased demand. Bucheon Expressway
However, its proximity to Seoul Gyeonggido
leads to the highest rent among the
major logistics clusters. The high Yeongdong
land prices caused a shortage of a Ansan Expressway Yongin 13%
supply in the past, but there is still
constant demand due to its
proximity to Incheon International Suwon
Airport.
Icheon
Hwaseong 24%
Namyangju-Ansan 21%
This area houses only small facilities, West Coast Expressway
not large, first class distribution
centers. However, this region has Ryeongtaek Anseong
started to see attention from
institutional investors due to its 10%
supply shortage and available land.
Source: Colliers International, RCA, Google Maps
3
COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
TRANSACTION TRENDS Top 10 logistics centers based on gross area
Area
Rank Property Location (sq m) Owner
Increase in transaction volume due to sale of large Hwaseong Dongtan Distribution
1 Hwaseong 487,480 ADF Asset Management
distribution center Center (B Block)
Yangji Arenas Logistics Center
2 Yongin 349,360 IGIS Asset Management
Recently, more tenants are looking for larger facilities to increase the 3 Kendal Bucheon Logistics Center Bucheon 305,595 Kendall Square
efficiency of their operations. Traditional retailers (i.e. Shinsegae and Lotte 4 Sihwa MTV Logistics Center Ansan 235,810 LG Group (Pantos)
Group) are increasing the quantity of business they do online. At the same 5 CJ Logistics Konjiam Center Gwangju 221,100 CJ logistics
Lotte Global Logistics Osan Logistics
time, major logistics companies (i.e. CJ Korea Express and Lotte Logistics) and 6 Osan 200,470 Kendall Square
Center
major online retailers (i.e. Coupang and Market Kurly) are expanding, leasing 7 Goyang Logistics Park Goyang 199,680 Kendall Square
space in mega-sized logistics centers developed by institutional investors. 8 Jinwi Logistics Center Construction Pyeongtaek 149,625 Pacific AMC
This is compared to the past, where conservative institutional investors Kendall Anseong Won Grain Anseong
9 147,710 Kendall Square
preferred stable investments that were master-leased by major tenants. Logistics Center
Kendall Gimpo Gochon Logistics
10 Center
Gimpo 137,145 Kendall Square
> 30,000 pyeong Source: Colliers International, Korea Logistics Newspaper
In addition, as fresh food delivery volumes are increasing, the investment and
(99,000 sq metres) supply of refrigerated distribution centers are increasing. The Lotte Global
of institutional investors' investment Logistics Center is the largest refrigerated logistics center in Korea and its
volume in large logistics centers acquisition by Kendall Square Asset Management has focused investors’
attention on the to refrigerated distribution center market.
Considering the upcoming, mega-sized logistics centers, we expect increasing
However, nowadays investors are actively involved in every stage of logistics investment volumes for similar logistics centers.
center development and management, from securing tenants at the Top 10 logistics transactions (2018-2019)
development stage to managing logistics centers for tenants' needs. Volume
Rank Property Location (KRW Bil.) Buyer / Investor
Institutional investors have invested in new logistics centers in Yonginand
Hwaseong Dongtan Distribution ADF Asset Management,
Icheon in the past. However, this focus has shifted to Anseong and the Incheon 1 Hwaseong 501
GIC
Center (B Block)
region as a shortage of available development land in Yongin and Icheon along 2 Logis Valley Ansan Ansan 374 CBRE Global Investors
with declining new supply due to the difficulty of obtaining licenses. 3 Lotte Global Logistics Center Osan 318 Kendall Square
4 Samsung C & T logistics center Seoul 229 Hyundai E&C
The transaction of Dongtan Logistics Complex at Dongtan-myeon, Hwaseong-si,
5 Hyundai elevator HQ Icheon 205 SK Hynix
Gyeonggi-do set a record price for logistics transactions in the past two years.
Dongtan Logistics B Block, which has the largest, stand-alone floor area 6 Yongin Baekam Logistics Center Yongin 155 Mastern AMC
(487,480 sq meters) in Asia, was sold to ADF Asset Management for KRW500 7 Gonjiam Distribution Center Gwangju 154 Deautsche AMC
billion (USD420 million). Logis Valley Ansan Logistics Center recorded next Hwaseong Dongtan Distribution ADF Asset Management,
8 Center (A Block)
Hwaseong 140
GIC
highest sales price, being acquired by CBRE Global Investors. It is a high-tech Anseong Homeplus Logistics
facility with a floor area of 23,500 sq meters and a cap rate of 5.7% which is 9 Center
Anseong 137 KB REITs
high for a logistics facility. 10 Incheon Skybox Incheon 130 IGIS AMC, Blackstone
4 Source: Colliers International, RCA
COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
MAJOR INVESTORS IN LOGISTICS CENTERS
Korean industrial real estate investment has been led Top 10 Korean logistics center investors (2018-2019)
by foreign investors. However, the National Pension
Service (NPS), and the Public Officials Benefit Volume Number of
Association (POBA) acquired most of the recent Rank Company Name (KRW Bil.) properties
logistics centers. 1 ADF AMC 850 5
ADF Asset Management (ADF) has been an active 2 Kendall square 791 8
investor in the logistics market for the past two years. 3 HANA Finance 349 4
ADF is a local asset manager that focuses on managing 4 Mastern AMC 280 4
a logistics real estate blind fund raised from NPS and
5 IGIS AMC 233 3
POBA. According to Maeil Business, ADF manages a
total of about KRW2 trillion (USD1.6 billion) worth of 6 World Advisor 230 1
logistics assets. 7 KB Securities 197 2
According to Korea Logistics News (KLN), Kendall 8 Pebblestone AMC 112 2
Square is one of the most active investors and
9 Meritz 100 1
developers. Once their ongoing development projects
are complete, Kendall Square will be the number one 10 Mellon AMC 96.2 1
logistics center investor in Korea. Source: Colliers International , RCA.
In terms of transaction size, GIC is the most active
foreign investor with the acquisition of Dongtan Top 10 foreign logistics center investors (2018-2019)
Logistics Complex from ADF’s real estate fund.
Volume Number of
Nuvin Real Estate made its first investment in Korea by Rank Company Name (KRW Bil.) properties
acquiring the Last Mile Logistics Center at Namyangju 1 GIC 641 2
in Gyeonggi-do that was leased primarily to e- 2 CBRE GI 511 4
commerce giant Coupang. 3 DWS 215 2
Along with IGIS Asset Management (IGIS), Blackstone 4 CPPI 156 2
acquired the logistics center at Gyeongin Ara 5 M&G Real Estate 153 1
Waterway in Incheon Terminal for KRW130 billion
6 Lasalle AMC 150 1
(USD109 million).
7 Blackstone 130 1
Recently, KKR sold BLK Pyeongtaek Logistics Center to
8 Credit Suisse 112 2
Pebblestone Asset Management. Interest in the
Korean logistics market is steadily increasing not only 9 Nuvin Real Estate 42.5 1
from foreign limited partnerships but also from major 10 Maple Tree 37.8 1
global private equity managers. Source: Colliers International , RCA.
5
COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
MAJOR DISTRIBUTION CENTER TRENDS
Last Mile
The last mile of delivery has been becoming increasingly important, with delivery companies prioritizing the
efficiency of this last mile before products reach consumers. We recommend traditional logistics companies,
which have traditionally focused on large volumes of a limited number of products, consider strategic
partnership or initiate mergers or acquisitions with startups that are specialized in multi-product online
transactions with small volumes to prepare for a new logistics era where management of the last mile is valued
more.
As the e-commerce market diversifies, usage of logistics real estate also diversifies. The average size of logistics
centers in suburbs far from the city is increasing for operational efficiency. On the other hand, there is more
flexibility in minimizing the size of last mile distribution centers near the city center depending on types of e-
commerce.
As retailers' competition in shortening delivery time continues, we forecast that demand for urban logistics real
estate for last mile deliveries will increase. We expect that constructing new infrastructure for logistics centers
near cities will increase.
We recommend real estate investors shift their focus to the fourth generation of logistics technology (Logistics
4.0), which incorporates AI, autonomous delivery robots, warehouse robots, and drone couriers, in order to
acquire a diverse pool of tenants (shippers) beyond traditional logistics tenants.
Driving this shift is the scenario where distributors with advanced technology and logistics facilities purpose built
for last mile take advantage and arise as major tenants in the era of Logistics 4.0 technology.
Fulfillment Center
Fulfillment refers to the entire process in logistics from receiving goods,
storing, ordering, packing, and shipping them.
The distribution industry is fully committed to establishing engine-like
distribution centers. Nowadays, the industry is focused on acquiring urban
distribution centers for fast delivery service in the city center, not just for
simple storage. Construction of fulfillment center infrastructure, optimized for
B2C service, has emerged as hot spot in the distribution center world for this
era where 3PL service is optimized for B2B service.
Over the next two to five years, we expect a shift to distribution centers
located near or in cities, partly driven by the increase in fresh food delivery.
6
COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
The emergence of listed logistics REITs Amazon's logistics center in Graben, Germany
As REITs market in Korea is getting more active, logistics REITs are getting
more attentions naturally.
Kendall Square Logistics Properties, the one who have made aggressive
investments in Korean logistics centers through Kendall Square Asset
Management, is preparing to form logistics REITs with ticket size of KRW800
billion (USD671 million) to KRW1 trillion (USD8.3 billion). Moreover, we view
rapid expansion of REITs market through the emergence of listed logistics
Reits.
Increase in offshore logistics center investment
Korean institutional investors have increased their investment in logistics
assets as harsh competition of acquiring office assets lowered cap rate. As
series of competition lowered returns on logistics investment in Korea,
Korean investors have started to turn their attentions to offshore logistics
investment opportunities.
According to the Hyundai Economic Daily, investing in logistics assets that
are leased to Amazon has gained world-wide popularity, leading total
volume of offshore Amazon logistics facility to grow more than KRW2 trillion
(USD 1.6 billion)in 2019. Amazon already has more than 200 distribution
centers around the world, and we expect more investors will continue to
show their interests to those assets. Source: Reuters
Kendall Square Logistics Facility Korean investor-owned, Amazon-occupied overseas logistics centers (2019)
Company Name Property (City/Country) Volume, KRW (Bil)
Samsung Securities Prague, Czech Republic 1,860
IGIS Asset Management Mönchengladbach, Germany 2,600
Barcelona, Spain 5,500
Paris, France 5,500
Bristol, United Kingdom 5,500
Mirae Asset Daewoo Los Angeles, USA 900
Source: ESR.com Source: Colliers International , Hyundai Economic Daily, RCA.
7COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
LOGISTICS CENTER INVESTMENT STRATEGY
Expansion of Logistics Blind Fund Integration strategy of small
Using a blind fund structure, asset managers can logistics centers
expedite the investment process as they can Compared to operating a single, large facility,
shorten the time it takes in sourcing and operating several small logistics centers may
fundraising for transactions. have lower operating efficiency as it requires
In recent years, blind funds that invest at the more manpower and facilities investment. This
development stage and yield higher returns have pushes logistics companies to consolidate
been more popular than funds that only invest in several small distribution centers into an
established assets. For instance, IGIS is developing autonomous, single, large distribution center.
a logistics center in Korea with blind funds from As it becomes more difficult to secure sites and
offshore institutional investors. obtain licenses for new development, our view
Going forward, we expect to see an increase in the is that investors should consider redevelopment
use logistics-focused blind fund structures in order and integration of outdated, small and medium
to handle increased demand for logistics centers. sized logistics facilities for their future
investment.
Development after pre-leasing
The number of transactions where a buyer
acquires first with the intent to develop upon pre-
lease is increasing. Asset managers skilled at
identifying tenants in the development stage
before the acquisition of assets should have an
advantage in investing in logistics assets.
If integration and redevelopment of outdated
logistics centers persist, we forecast that the
vacancy rate of those assets may continue to rise.
Similar to Seoul’s tenant-oriented office market,
where pre-leasing is quite important, we urge
logistics landlords to secure tenants in advance of
development. With the logistics center technology
being specific to each occupier, a build to suit
model is increasingly common.
8COLLIER S R AD AR IND US TR IAL | R ES EAR CH | S EOUL | 30 MAR CH 2020
Logistics center development close to CBD A model that adds α – alpha
In addition to large logistics centers adjacent to expressways, to logistics centers
investment in small logistics facilities specialized in last mile
deliveries is expanding. Over the next five years, we forecast Market beating performance
collaboration between large logistics centers and smaller, The future success of logistics center
last-mile warehouses will continue. Hence, we believe that development depends upon investors and
real estate investors will need to scout investment developers working together in the early
opportunities to match the demand flows. stages of a project.
Increase in cold chain Developers must add α – alpha, a factor
logistics centers that pushes performance beyond the
average. This can be done by focusing
We expect continuously increasing demand in cold chain increased attention on the needs of
logistics centers from both traditional retailers and online tenants. Developers can stuff their
fresh-food sellers as they are looking for ways to strengthen facilities with high-tech components, but
their fresh food delivery service. As demand in cold each tenant has particular needs along
refrigeration warehouse increases due to an increase in with their own technology.
revenue from fresh food delivery, we expect a bigger number
By partnering with tenants early,
of large logistics companies to move their logistics centers
developers can be positioned as a critical
near Seoul.
partner to their tenants’ success.
As getting a governmental license for a new logistics center
development is increasingly difficult, we view further value
will be added to existing assets after re-modeling to provide
refrigeration and freezing facilities. Therefore, we
recommend investors consider investing in value-added
assets that purchase dry logistics assets and redevelop them
into cold chain distribution centers.
9Primary Author: For further information, please contact:
Judy Jang Robert Wilkinson
Associate Director | Research | Korea Managing Director | Korea
+82 2 6325 1918 +82 2 6325 1901
judy.jang@colliers.com Robert.Wilkinson@colliers.com
Andrew Haskins
Executive Director | Research | Asia
+852 2822 0511
andrew.haskins@colliers.com
Joon Lee
Senior Director | CMIS | Korea
+82 2 6325 1907
joon.lee@colliers.com
Jay Cho
Director | Office Services| Korea
+82 2 6325 1905
jay.cho@colliers.com
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