China Warehousing and Distribution Survey EN

China Warehousing and Distribution Survey Jones Lang LaSalle and China Supply Chain Council

Integrated Facilities Management 2006 Asia Pacific

Still in its relative infancy, the China logistics market offers intense opportunities and challenges to real estate as the huge demand for property balances against regulatory hurdles and the lack of market transparency.

In July 2006, Jones Lang LaSalle and the China Supply Chain Council partnered up to undertake a survey of 138 domestic and foreign companies involved in logistics activities in China, aiming to uncover the potential of China’s logistics market and to provide new insights into the future market landscape.

INTRODUCTION Efficient distribution systems will be the backbone to the success of China’s continuing economic growth and modernization. As both global and domestic demands for Chinese goods continue to escalate, the logistics industry will need to expand rapidly to offer efficient and costeffective services to manufacturers and retailers in China.

Still in its relative infancy, the China logistics market offers intense opportunities and challenges to real estate, as addressing the huge demand for property balances against regulatory hurdles and the lack of market transparency.

To help uncover the potential of China’s logistics market, Jones Lang LaSalle and the China Supply Chain Council have partnered to undertake the first ever survey of the logistics industry. This is part of the program of an in-depth research on the geographical opportunities and dynamics of operating in this complex market.

A survey of 138 Chinese and foreign companies involved in logistics activities conducted in July 2006 has provided new insights into the current and likely future landscape for the logistics industry in China.

Some of the key findings of the survey are:

LOCATION TRENDS Overwhelming concentration of current logistics activity in the 3 main regional clusters • The overwhelming majority of respondents’ warehousing facilities (85.0%) are located in one of the three main regional clusters, Yangtze River Delta (YRD), Pearl River Delta (PRD) and Greater Bohai Bay (GBB).

• The largest concentration is in the YRD region (43.0%), with the focus on Shanghai (32.0%).

• Both the PRD and GBB regions (at 21.0% each) currently have lower representation than the YRD. In the PRD, the focus is on Guangzhou (11.0%) and Shenzhen (9.0%), and in the GBB, on Beijing (13.0%) and to a lesser extent, Tianjin (4.0%).

Future logistics activity still concentrated in the three main regional clusters with a relative shift in focus away from Shanghai and Beijing Future plans (over the next two years) point to continued focus on the three main regional clusters (stable at 85.0%).

• However, there is a shift away from Shanghai and the YRD region (27.0%), and an increasing focus on the PRD region (35.0%), notably in Guangzhou (19.0%) and Shenzhen (15.0%) where there have been significant investment in road, rail and port infrastructures.

• The GBB region is also on the future plans of more companies.

However, growth is refocused toward the port of Tianjin (8.0%), rather than Beijing (13.0%).

• Outside the three main regions, Chengdu has the most noteworthy representation (5.0%). Otherwise, only Xiamen and Shenyang were mentioned by more than 1.0% of respondents.

• Outside the three main clusters, Chengdu stands out on companies’ growth plans (with 11.0% of respondents planning to open new facilities). Other cities mentioned by more than 1.0% of the respondents are Qingdao and Wuhan.

China Warehousing and DC Facilities: Current Locations

China Warehousing and DC Facilities: Plans for Next 2 Years

Other 15%

Greater Bohai Bay 21%

Pearl River Delta 21%

Other 15%

Pearl River Delta 35% Yangtze River Delta 43%

Xiamen 3% Chengdu 6%

Beijing 13% Tianjin 5%

Yangtze River Delta 27%

Chengdu 12%

Shenzhen 9%

Beijing 13% Tianjin 8%

Shenzhen 15%

Guangzhou 12% Shanghai 32% Suzhou 7%

Greater Bohai Bay 23%

Guangzhou 19%

Shanghai 23% Suzhou 2%

Transport infrastructure and access to markets drive location decisions • The availability of transport infrastructure and access to markets and suppliers are cited as the most important factors in choosing a warehousing location. Hence, the focus has been on the three main regional clusters, which offer the best transport infrastructure, the largest consumer markets, and the deepest supplier networks.

• Proximity to ports is also an important factor, reflecting the continued focus of China’s logistics activities on export markets.

On the other hand, proximity to airports is less important due to the relatively low volumes of goods currently transported by air.

• With evidence of shortages of skilled logistics staff in China, the availability of qualified labor is seen as a more important factor than the cost of labor, which scores relatively low.

Key Factors for Choosing a Warehouse Location in China

Speed, specialization and systems • In time, respondents expect a growing importance of narrow delivery time windows and a reduction in the allowed customer lead.

• To a less significant degree, respondents also expect the greater importance of specialist warehouses as well as the greater use of information technology (IT).

Outsourcing, consolidation and increasing warehousing size • Respondents anticipate strong growth in outsourcing to PanChina third-party logistics provider (3PLs) and expect an increase in the size of warehousing.

Efficiencies sought from warehousing space • Service level and range, together with capability to reduce inventories, are cited as the most important criteria for selecting a warehousing facility.

• Warehousing space costs are also important, but rank below services and efficiencies.

Transport Infrastructure Access to Markets

• Warehousing space costs, as a percentage of total warehousing costs, can range very significantly from below 5.0% to over 40.0%.

Access to Suppliers Proximity to Ports Proximity to Inter Modal Warehousing Space Costs Availability of Qualified Labour

Criteria for Selecting Warehousing Facility

Proximity to Airports Labour Costs 3

Service Level 3.2

3.4

3.6

3.8

4 Score

TRENDS IN BUILDING SPECIFICATION Shift in warehousing use from storage to value-added services anticipated • Storage is currently the most significant current use of warehousing (25.0%), followed by transshipment (20.0%), value-added services (20.0%), and consolidation (18.0%).

• However, plans over the next three years indicate a shift away from warehousing for storage purposes toward other highervalue activities.

• While growth is expected across all warehousing uses (including storage), the strongest growth is expected in value-added services, transshipment, and consolidation.

China: Current Warehousing Uses

Consolidation 18%

Storage 25%

Reverse Logistics 7% Value-Added Services 20%

Trans-shipment 20% Industry Operations 9%

Capability to Reduce Inventory Service Range Price Local Market Experience Communication Skills International Experience 3.5

3.7

3.9

4.1 Score

Security is an important issue • By far, security is seen as the most important extra service required of a warehousing facility, and levels of security are cited as the most critical problem area with current warehousing facilities.

Respondents also mentioned a number of other shortfalls in the current warehousing provision, which has provided new insights into future building requirements in China.

Strong preference for leasing existing facilities rather than design and build or ownership • Two-thirds of respondents expressed a preference to procure existing warehousing rather than design and build.

• Eighty percent prefer to lease rather than own their warehousing facilities. The preferred lease length is one to three years (57.0% of respondents).

• The survey reveals an equal split in the preferences for multiuser sites versus independent facilities. Half of the respondents require either both types or have no explicit preference.

China Warehousing: Leasing v Ownersip Preferences

Ownership 20%

Leasing 80%

The China Supply Chain Council (CSCC) is now a fast growing community reaching more than 10,000 professionals all across China. As a neutral and independent professional organization, the Council’s mission is to stimulate the understanding, adoption and use of supply chain management by providing, among others, a directory, newsletters, seminars, workgroups, conferences, resources and other information. www.supplychain.cn

About Jones Lang LaSalle Jones Lang LaSalle (NYSE: JLL), the only real estate money management and services firm named to Forbes magazine’s Platinum 400, has more than 100 offices worldwide and operates in more than 430 cities in 50 countries. With 2005 revenue of approximately US$1.4 billion, the company provides comprehensive integrated real estate and investment management expertise on a local, regional and global level to owner, occupier and investor clients. Jones Lang LaSalle is an industry leader in property and corporate facility management services, with a portfolio of 966 million square feet worldwide. In 2005, the firm completed capital markets sales and acquisitions, debt financings, and equity placements on assets and portfolios valued at US$43 billion.

LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse real estate money management firms, with approximately US$37 billion of assets under management. For further information, please visit www.joneslanglasalle.com.cn

China Warehousing: Preferred Lease Terms No Leased Facilities 6% 10 years + 6%

Jones Lang LaSalle has over 45 years of experience in Asia Pacific.

With over 10,000 employees operating in over 30 markets across the Asia Pacific region, the company is positioned to partner with clients to provide the quality advice needed for making quality decisions.

7-10 years 10%

4-6 years 21%

About the China Supply Chain Council

1- 3 years 56%

For further information on this survey and how Jones Lang LaSalle and China Supply Chain Council can help with your real estate decisions, please contact: Max Henry Founder & Executive Director China Supply Chain Council mhenry@supplychain.cn Tel +86 21 5102 1617

COPYRIGHT © JONES LANG LASALLE 2006

Trent Iliffe Head of Industrial, China Jones Lang LaSalle Trent.Iliffe@ap.jll.com tel +86 21 6132 3706

Wonder Wang Senior Manager - Logistics, China Jones Lang LaSalle wonder.wang@ap.jll.com tel +86 21 6132 6906