COLLIERS RADAR INDUSTRIAL | RESEARCH | SEOUL | 30 MARCH 2020 Judy Jang Associate Director | Research | Korea +822 6325 1918 [email protected] LAST MILE OPPORTUNITY IN KOREA Increasing e-commerce demand requires more logistics centers for last mile delivery COLLIERS RADAR INDUSTRIAL | RESEARCH | SEOUL | 30 MARCH 2020 Summary & Recommendations 20% annual KRW6 60% ecommerce million increase As the types and penetration of e- growth per pyeong from 2018 commerce diversifies, the use of logistics 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 licensing is difficult and restricts the supply of new logistics centers in urban 1,500 areas. Investors should focus on 1,000 redevelopment and integration of Billion(KRW) outdated small and medium-sized, 500 logistics facilities. - 2013 2014 2015 2016 2017 2018 2019 Source: Colliers International, RCA 2 COLLIERS RADAR INDUSTRIAL | RESEARCH | SEOUL | 30 MARCH 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 Suwon proximity to Incheon International Icheon Airport. 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 COLLIERS RADAR INDUSTRIAL | RESEARCH | SEOUL | 30 MARCH 2020 Top 10 logistics centers based on gross area TRANSACTION TRENDS 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) 2 Yangji Arenas Logistics Center 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. Shinsegaeand 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 9 Anseong 147,710 Kendall Square preferred stable investments that were master-leased by major tenants. Logistics Center Kendall Gimpo Gochon Logistics Gimpo 137,145 Kendall Square 10 Center pyeong Source: Colliers International, Korea Logistics Newspaper > 30,000 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 Institutional investors have invested in new logistics centers in Yonginand Rank Property Location (KRW Bil.) Buyer / Investor ADF Asset Management, 1 Hwaseong Dongtan Distribution Hwaseong 501 Icheon in the past. However, this focus has shifted to Anseong and the Incheon Center (B Block) GIC 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 sqmeters) in Asia, was sold to ADF Asset Management for KRW500 7 Gonjiam Distribution Center Gwangju 154 Deautsche AMC Hwaseong Dongtan Distribution ADF Asset Management, billion (USD420 million). Logis Valley Ansan Logistics Center recorded next 8 Hwaseong 140 Center (A Block) GIC highest sales price, being acquired by CBRE Global Investors. It is a high-tech Anseong Homeplus Logistics 9 Anseong 137 KB REITs facility with a floor area of 23,500 sq meters and a cap rate of 5.7% which is Center high for a logistics facility. 10 Incheon Skybox Incheon 130 IGIS AMC, Blackstone 4 Source: Colliers International, RCA COLLIERS RADAR INDUSTRIAL | RESEARCH | SEOUL | 30 MARCH 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