Regional logistics warehouses in Asia are increasingly sought after by investors for three key reasons: 1) They provide stable rental income and premium yields compared to other real estate sectors due to strong demand driven by private consumption, urbanization, and an emerging middle class. 2) Investors are seeking less volatile assets with reasonable returns due to global economic uncertainty. 3) Demand for logistics warehouses is expected to continue outstripping supply due to the need to distribute goods to growing populations and the rise of e-commerce across Asia.

1. Regional Real Estate Research
Why are
being sought after in Asia?
logistics warehouses

2. INTRODUCTION
COLLIERS' VIEW
SECTION 1 – Private Consumption
• Young Population
• Growing Urbanisation
• Burgeoning Middle Class
• China as the Key Driver
• Online Retailing
SECTION 2 – Real Estate Investment
• Global Risk Aversion
• Development Cycle
• The Opportunities Are There
• Winning Strategies
• Key Challenges and Threats
• Logistics Warehousing and Rental Outlook
• Industrial Yield
• Logistic Yield
CONTENT
The increasing volatility of prices in various asset
markets and the growing difficulty of finding
reasonable risk-adjusted returns have pushed
investors into niche real estate sectors such
as hotels, serviced apartments and logistics
warehousing. Logistics warehouses have come
onto the radar of most prospective investors simply
because this unique property sector offers them
the benefits of stable rental income and premium
yields.
For this report, we conducted a comprehensive
review of the key market drivers of the logistics
warehousing sector, including the strength of
local private consumption, the ever-increasing
rate of urbanisation, and the skyrocketing volume
of online retail sales. Besides the support of retail
consumption, the resilient performance of Asia’s
industrial production offers solid evidence to
support the strong case for investing in the region’s
logistics warehouses. This report also explains why
this unique sector has hitherto been overlooked,
and why investors should consider it now.
INTRODUCTION

3. Despite slackening demand for imports in western economies,
Asia’s industrial production has continued on an upward trend.
Although external shocks, such as the global financial crisis in
2008/2009, resulted in slight disruption, the region’s industrial
output, as a proxy for the general demand for logistics warehouses,
grew at a CAGR of 10.4% between 2009 and 2012. Interestingly,
its current growth momentum is faster than it was during the pre-
crisis period (i.e. from 2002 to 2007) after Asia benefited greatly
from China’s entry into the WTO in 2001.
Besides the proactive initiatives implemented by various
governments to boost their internal consumption, Asia’s
demographics bode well for private expenditure in a number
of countries where the average age of the population is young,
household income is consistently rising, and the number of middle-
class families is growing. All these factors have formed a solid base
for increasing retail sales. Fundamentally, the demand for logistics
is a function of external trade. Yet the growing significance of
private consumption expenditure in Asia has gradually redefined
the prospective demand for logistics real estate in the region.
The prolonged sovereign debt issues in Europe and the uninspiring pace of recovery in the US have flustered global markets
to varying degrees. Yet economic activity in Asia has remained largely resilient to such external threats, because most of
its countries have been prudently managing their debt level relative to GDP.
A Resilient Market
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
- 150
- 100
- 50
0
50
100
150
200
250
300
Jan-92
Aug-92
Mar-93
Oct-93
May-94
Dec-94
Jul-95
Feb-96
Sep-96
Apr-97
Nov-97
Jun-98
Jan-99
Aug-99
Mar-00
Oct-00
May-01
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
May-08
Dec-08
Jul-09
Feb-10
Sep-10
Apr-11
Nov-11
Jun-12
Jan-13
%changeyear-on-year
Index(2000=100)
10.4%
"GFC" Shock9.11 Incident
9.3%
Asia Industrial Production Index
Source : CEIC
Note : The Asia Industrial Production Index is an aggregate indicator of the overall industrial production volume in Asia. It covers 21 countries.
The Index is updated every month by CEIC, and it starts with a baseline of 100 in the year 2000.
Colliers InternationalRegional Real Estate Research I June 2013
1
GFC
after
pre
%
%10.4
9.3

4. The spending momentum in Asia is going to be sustained by the fact that its average
population age is young. As of 2010, around 45% of Asia’s 4.2-billion population was aged
between 20 and 49. This demographic group tends to have a higher disposable income and
spending capacity. The percentage will remain largely unchanged between 2010 and 2020.
Among Asia’s key markets, China is going to be the powerhouse in terms of growth, given
its huge population and proactive government initiatives, which include constant reviews of
its economic model and the continued development of infrastructure links to foster internal
consumption by allowing the country’s second and third-tier cities to catch up with its first-
tier ones.
The trend in individual Asian cities is exemplified by the increasing number of high-income
singles and families (known as “DINKS” – Double Income No Kids). Besides general
merchandise, this population sector has a growing appetite for luxury products.
Young Populations
Private consumption by the local population on
general merchandise is a key driver of the demand
for logistics. Such merchandise includes a range
of fast-moving consumer goods (FMCGs) for daily
consumption. Another is the spending of wealthier
households and inbound visitors on luxury items.
The growth in private consumption reflects
not only the region’s relatively bright economic
prospects but also its encouraging demographics,
including a young population, the sustained pace
of urbanisation, and the emergence of middle-class
households. All of these are expected to underpin
private consumption expenditure in the future, and
the consequential demand for logistics real estate
to cater for local distribution.
SECTION 1
Private Consumption
Colliers InternationalRegional Real Estate Research I June 2013
4
As of 2010,
around
of Asia's45%
20&49
V
V
4.2-billion population was
aged between
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80+
Asia Population Distribution
2010 2020
Source : United Nations, Department of Economics and Social Affairs

5. Asia
696
1,794
China
Number of people (million)
Asia’s strong economic growth will do more than boost the volume of sales in its retail markets; it is also going to increase the number of
middle-class families and high-net-worth individuals (HNWIs) who can afford to buy high-end luxury products. The chart below estimates
the sharp increase in the number of middle-class households that will occur between 2010 and 2020. In fact, according to the Boao
Review, 696 million of the world’s 2 billion middle-class inhabitants lived in Asia in 2010. The projection suggests that the number of Asia’s
middle-class people will increase by 158% to a total of 1,794 million by 2020. In terms of geographical distribution, China and India will
account for 80% of this net increase.
2010 2020
Source : The EIU
Source : The Boao Review
Note : “Middle-class” households are defined as households with a daily expenditure of between US$10 and US$100 per person,
based on 2005 purchasing power parity items
The continued improvement of infrastructure and further economic growth are driving the demand for labour in Asia’s cities. Around
200 million more people will move into them between 2012 and 2017. In addition, the unemployment rate in most Asian cities is currently
below its historical average level, thus indicating that a tight labour supply will fuel the growth of wages, and thus private consumption
expenditure.
Growing Urbanisation
Growing Middle Class in AsiaForecast Growth in Urban Population ( 2012 - 2017 )
China
India
Indonesia
87.1
42.5
24.2
Pakistan 11.3
Philippines 10.3
Vietnam 3.8
Malaysia 3.0
Thailand 2.1
South Korea 0.8
Singapore 0.7
Taiwan 0.6
Hong Kong, SAR 0.1
179 127
82 308
607 122
536 530
Number of people (million)
Burgeoning Middle Class
5 6
Regional Real Estate Research I June 2013 Colliers International
India Rest of Asia
Japan

6. The propensity to spend money on luxury goods in China is undoubtedly rising, due to the sustained accumulation of wealth in the country
during the past decades. According to projections by Euromonitor, the number of high-income households (i.e. those earning US$35,000
or more in a year) will grow more than threefold, from 20 million in 2011 to 65 million by 2020, whereas the percentage of high-income
households is forecast to increase from 5% of the total in 2011 to 15% in 2020. More importantly, the number of middle-class families in
China will increase significantly during the same period. For example, the number of upper-middle-income households with earnings of
between US$15,001 and US$35,000 will nearly double to around 135 million.
80%
51%
24%
14%
28%
29%
5%
16%
32%
1%
5%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2011 2020 (Forecast)
AsaPercentageofTotalNumberofHouseholds
Regional Real Estate Research I June 2013
High (More than US$35,000 p.a.) Middle (US$7,500-15,000 p.a.)
Upper middle (US$15,001-35,000 p.a.) Low (Less than US$7,500 p.a.)
Household Income Distribution in China
Source : Euromonitor
7
Colliers International

7. The volume of retail sales conducted via the Internet has ballooned over the past
decade, due to the continued advances of information technology and greater Internet
connectivity. The increasing use of broadband connections via smartphones has added
extra momentum to the growth of online retail sales. These rose nearly threefold between
2010 and 2012. Yet there is still a huge amount of room for further growth. The volume
of online sales is forecast to soar by a further 260% in the five years up to 2017. The
pace could be even faster if the current percentage of online sales to total physical sales
of 2-3% catches up with mature economies, such as the 5-7% in the US. Demand for
logistics facilities to get these physical products delivered from retailers and wholesalers
to companies and private individuals is reckoned to be equally strong.
The total volume of retail sales in Asia increased by 12% year-on-year during 2012; and it surpassed US$7,000 billion for the
first time, thanks to the robust growth of consumption in mainland China. The top three locations in the region by market size
– mainland China, Japan and India – constituted more than 80% of the total pie. In fact, mainland China’s US$4,000-billion
market has been the key contributor to its overall growth. Besides economic growth, the unrelenting increase in household
more than
80%
China as the Key Driver Online Retailing
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
China Japan India Indonesia Sourth Korea Thailand Taiwan Philippines Malaysia Vietnam Hong Kong Singapore
ValueofRetailSales(US$billion)
0
50
100
150
200
250
300
350
400
450
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ValueofSales(USDbillion)
Forecast
China, Japan
and India
others
Source : The EIU Source : Euromonitor
2013 2014
Retail Sales in Asia (By Country / City) On-line Retail Sales (Asia Pacific)
Regional Real Estate Research I June 2013 Colliers International
incomes resulting from the tight labour market and minimum wage
legislation should create a strong impetus for China’s sustained
growth. According to the EIU’s projection, China is set to overtake
the US for the first time ever as the country with the world’s highest
volume of sales during 2013.
9 10

8. Regional Real Estate Research I June 2013
The popularity of logistics warehouses in Asia as a
form of investment has increased in the past couple
of years, due to a significant shift of focus by real
estate investors away from just short-term capital
appreciation towards yields and income security. This
can be explained by the fact that sustained economic
uncertainties in the marketplace have made global
markets increasingly volatile.
SECTION 2
Real Estate Investment Global risk aversion is the buzz phrase among many real estate investment managers nowadays, and people are
increasingly going for yields. Also, investors are getting more and more concerned about the growing policy and
liquidity risks in some Asian markets. For example, the residential sector is becoming very politically sensitive,
as a number of local governments are determined to curb any dramatic increases of local housing prices in order
to counteract the risk of a real estate bubble. At the same time, it would be more difficult for investors to exit the
market if there is an oversupply situation and a lack of market liquidity. The commercial sector has a good level
of liquidity and there is constant demand. Yet it is always a challenge for investors to secure investment-grade
developments at prices that match their target returns. Moreover, it is too difficult for general players to participate
in the retail property market, unless they have already built up a team of retail-focused staff on the ground, and have
the assistance of local experts.
Although logistics warehousing is a highly-specialised property sector, the level of risk during its development
is relatively low, because it progresses from a bare site to completion without too many complications. And it is
easy to replicate after the first project has been completed successfully, as developers and their local partners
grow increasingly familiar with various aspects of the process, for example quality requirements and building
specifications.
Global Risk Aversion
Development Cycle
12
Regional Real Estate Research I June 2013 Colliers International

9. Key Challenges and Threats
Investors tend to adopt a defensive mode when it comes to risk aversion. Many would prefer
to stick to the basics and work on realistic return parameters. Asian investors have been
challenged with yield compression in a number of property sectors. However, there are still
industrial and warehousing opportunities that yield a net operating income of over 8% per
annum say in China, if investors go out to find them.
While the market in Asia is competitive, it is also big enough to accommodate more
investors. In China, demand for modern logistics facilities in second and third-tier cities
has been growing rapidly. Given the current distribution of economic activity across the
country, investors will have a better chance of winning market share if they plan and invest
concurrently in both first and second-tier cities. The experience of seasoned market players
shows it makes more economic sense to develop a cluster of three or four warehouses
in one city, so that they can leverage their total fixed costs better and gain more market
exposure and visibility.
As previously discussed, teaming up with local partners who understand the local market
and sourcing suitable developments are the best strategies for most players. Changes of
government personnel are a key risk factor in the majority of Asian emerging markets. In
the case of new construction, frequent changes to the statutory requirements concerning
building services also affect the total cost and timeframe of construction.
A key challenge for most prospective investors is the fact that
the logistics warehousing market is not transparent, especially in
China and Japan, plus the fact that stock is not readily available
for sale. The value of sales transactions of industrial and logistics
developments in Asia forms just a minor 7-10% of the total pie,
according to statistics provided by RCA. The thin sales transaction
volume is attributable to the lack of modern logistics facilities on the
supply side, relative to the inherent demand created by ever-growing
economies. A significant number of existing logistics warehouses
in China are not yet up to international standards. Many of them
are simply converted, dilapidated factories. The conclusion is that
demand for modern logistics warehouses will continue to outstrip
the level of supply, at least in the near to medium term.
The Opportunities Are There
Winning Strategies
Regional Real Estate Research I June 2013 Colliers International
13 14
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012
ValueofTransactions(US$billion)
Office RetailIndustrial Apartment Hotel
Asia Real Estate Investment Sales Transaction Volume
Source : RCA
Note : Properties and portfolios $10 million and greater
A joint-venture
partnership with a local
developer can help
notwithstanding the fact some
would argue that partnering
itself creates risks !
V
V
investors avoid some of
the above risks,

11. Colliers International
15 16
As a general investment benchmark, the average industrial capitalisation rate in Asia fell to an all-time low
of 5.8% in 2Q 2012; but it edged up again to 7.1% in 1Q 2013, according to statistics provided by RCA. The
increase in cap rates reflected growing uncertainty in the traditional warehousing sector about the sovereign
debt problems in the Eurozone, which had still not been fully resolved. However, strong demand continues for
quality logistics warehouses and distribution facilities, particularly those supported by seasoned managers, and
the average capitalisation rates have been compressed.
Industrial YieldLogistics Warehousing Rental Outlook
5% 5%
0%
5%
4%
10%
3%
0%
5%
10%
15%
20%
25%
0
5
10
15
20
25
Hong Kong Singapore Tokyo Delhi Shanghai Beijing Guangzhou
ForecastGrowth(%Changeyear-on-year)
Rental(US$persqftperannum)
Asia Logistics / Industrial Rentals ( By Key Markets ) Asia Industrial Capitalisation Rates
Source : Colliers
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2007 2008 2009 2010 2011 2012 2013
CapitalisationRates/BondYields(%perannum)
Source : RCA; CEIC
Industrial Capitalisation Rates 10-year US Bond Yields Average Industrial Cap Rate (2007-2012)
Beijing is going to deliver an exceptional performance, primarily due to the accelerating expansion of its third-party logistics (3PL) companies
and e-commerce sector. Meanwhile, the growth momentum is going to be sustained by the city’s lack of new supply of quality, modern
logistics facilities. In Tokyo, the leasing market has remained steady, and it is well supported by a number of local logistics companies.
Given the length of leasing contracts, in the region of 5-10 years, rents in Tokyo are expected to stay relatively flat. In India, the leasing
market’s outlook continues to look positive, thanks to the demand from light industry and IT/ITes sector. Meanwhile, the Indian government
has supported the upgrading of local infrastructure to international standards. Backed by demand from end users, rents are forecast to
rise by around 5% in 2013.
In China, the norm is around US$6-7 per sq. ft. per annum; and in most Chinese
cities, they are expected to increase in the order of 3-5% per annum, thanks to
the sustained growth of industrial production, cargo throughput volume and local
retail sales.
Hong Kong
TOKYO
Singapore
Three most-popular logistics hubs in Asia :
industrial and logistics rentals there currently average
US$22 per sq. ft. per annum.
Regional Real Estate Research I June 2013

12. Due to the sustained flow of investments into Asia, and the region’s subdued inflationary environment, risk-free rates have consistently
fallen by around 35 basis points over the past 12 months. The logistics and industrial property yield spread compared to these risk-free
rates narrowed further during the 12 months up to 1Q 2013. However, the spread widened in Japan. Ten-year Japanese government bond
yields fell to 0.58%, as of April 2013, due to the government’s determination to loosen its monetary policy in order to spur inflation. The
J-REIT market has become active as a result of the enhanced volume of liquidity. In Hong Kong, investment yields by valuation are in the
order of 3.60%, due to sustained demand from end users, the strong appetite of private equity investors, and expectations of further capital
appreciation arising from the industrial revitalisation initiatives being pushed by the government.
In China, long-term real estate funds have been eyeing opportunities for modern warehousing facilities for long-term growth in both the
first and second-tier cities. Investment yields for quality logistics premises in China currently range from 6 to 8% per annum. Given genuine
support from occupiers, overall investment yields have remained more than 300 basis points above the risk-free rate. The yield spread
in India is similar, where demand from manufacturers wishing to upgrade remains strong. In Singapore, the yield spread is more than
400 basis points, despite genuine rental support, as capital growth expectations have been moderated by the government’s new cooling
measures.
0%
2%
4%
6%
8%
10%
12%
India China Japan Singapore Hong Kong
Yield(%perannum)
Source : CEIC; Trading Economics
Note : Risk-free rates refer to long-term government bond yields
Yields (% p.a.) Risk-free Rates
Asia Logistics / Industrial Yields ( By Key Centres )
17
Regional Real Estate Research I June 2013 Colliers International
Without doubt, the universal golden rule for real estate investment is
“Location, Location, and Location”. Yet the property sector that has been
gaining popularity in the past couple of years has been “Logistics, Logistics
and Logistics”. Perhaps, the best buzzword nowadays would be “Logisti-
cation”!
In our view, the key reason for the change in emphasis has been a shift in
the strategy of investors towards risk-averse properties, particularly since
the global financial crisis. Put simply, growing price volatility in traditional
commercial real estate sectors and the increasing difficulty of sourcing
reasonable risk-adjusted returns have pushed more investors into logistics
warehousing – a niche property sector that demands a good combination
of physical (i.e. quality real estate) and intangible (i.e. value added by a
seasoned management) elements.
Logistics warehousing is a proven defensive play with long-term growth
potential. Demand for it in Asia is currently being fuelled by positive
demographic factors (e.g. the average population age and the pace of
urbanisation), the political policies being pursued by individual countries,
and growing private consumption expenditure in the region. However, there
has always been a lack of supply of good-quality logistics warehouses with
high physical specifications and management support by third-party logistics
(3PL) operators. A lack of investment-grade assets available for sale has
been the main reason why the sector was largely overlooked in the past.
For many years, so-called logistics warehouses have been dominated by
local players. The widely varying standards of service quality they have
offered has resulted in very different rental and occupancy performance.
However, demand for top-quality logistics warehouses managed by
trustworthy 3PLs is actually expanding, due to the growing requirements
of principals engaged in the entire supply chain management process –
notwithstanding the challenges posed by the global economic slowdown. In
fact, macro-trends in Asia have remained very solid, as can be demonstrated
by the resilient performance of both the region’s industrial output and the
volume of retail sales. Last, but not least, the key challenge for prospective
investors is perhaps how to team up with a local partner who possesses the
best local knowledge about areas such as rules and regulations, in order
to source opportunities that offer a yield spread of at least 300 percentage
points above the corresponding risk-free rates.
Colliers' Views
Pros Cons Strategies
Growing demand for
quality warehouse
Complex local rules
and regulations
Partnering with a right
local expert
Premium yields Liquidity risk
Going for a long-term
hold to enjoy steady
rental return
Short development
cycle; easy to replicate
Easy to introduce
competition
Building up a critical
mass; Targeting 3-4
development per city
Logistic Yield

13. Executive Sponsor
Piers Brunner
Chief Executive Officer, Asia
piers.brunner@colliers.com
Tel: +852 2822 0727
Author
Simon Lo
Executive Director
Research & Advisory, Asia
simon.lo@colliers.com
Tel: +852 2822 0511
Jessy Chung
Analyst
Research & Advisory, Asia
jessy.chung@colliers.com
Tel: +852 2822 0643
For further details, please contact:
www.colliers.com
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