Investment in Industrial: Building Boxes for China’s Future

Sunday, April 1, 2007 21:33
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In the last 7 years, China has gone from the little country that could… to the country that is on the front page of the journal every day. Of course, there are a number of macroeconomic issues related to this, and there is much debate about what is next, but for those of us in country the talk often surrounds the 2nd and 3rd tier cities and how they will come to be.

2 years ago, many of these cities were largely unknown by the western executive as they were just getting used to the idea that they had to have team in Beijing and Shanghai, but that has changed. In large part, this is due to the increasing costs of manufacturing on the east coast, but it is also a result of these cities becoming markets that are able to support a regional facility of their own.

At the same time as this was occurring, there the government was busy putting in regulations on residential real estate to cool off the “hot money” that was flowing into the residential developments in the major market. However, as we have previously covered, these regulations did little to turn away the serious investors who were willing to invest in larger sums (i.e. whole buildings)… and a growing portion of these investors have begun looking at industrial real estate investments as ways to ramp up portfolios.

Prologis is a perfect example as they have been buying up land around China in a “speculative” manner and constructing boxes for logistics companies and manufacturers. I say “speculative” because they are buying this land and putting in the investment without having a client already signed on. however, as we have shown in our regional profiles and our city profiles (Chengdu, Chongqing, Dalian, etc ), there is a tremendous amount of growth in these city, and as such the decisions are not speculative in the mind of Prolgois.

It is just a matter of time….

Investing in industrial read estate for some will be tricky, especially if the investor is weak in the macroeconomic survey of China or the logistics conditions of China.

I realized this while speaking with several investors (and an agency recently) as all three were looking at potential investments without considering whether or not the city/ location would be one that would be well place from a supply chain perspective.

For those that have read our other posts on logistics related issues, or view our logistics map of China, it is fairly clear which cities will be supply chain critical in the next 3 years, the next 5 year, the next 10 years, and then …never.

Hint 1: the Nanjing market can be served from Shanghai

Hint 2: Wuhan has air, rail, road, and the Yangtze

Over the last 6 months, we have been working on several related topics surrounding the growth of China’s 2nd tier. through our 200 interviews of government, park, and port officials, the trend is clear as many of the pieces are falling into place for multinational and domestic companies looking to move to the 2nd tier to open new markets.

As these pieces continue to align,expect industrial development and investment to increase as logistics companies build their networks, manufacturers build forward stocking locations and DCs, as container ports are finished, and others look for opportunities to leverage China’s massive rail network.

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