crossing borders
Shanghai | August 2014
CROSSING BORDERS Online shopping goes international, creates demand for bonded logistics warehouses
Online shopping has already changed the landscape for retailers and logistics companies. But a new variation is emerging that allows consumers to buy directly from abroad, with big tax savings: cross-border e-commerce. The Pudong Airport Free Trade Zone has already been approved to operate in this sector; Lingang is now in the application process. If crossborder e-commerce develops in China the way it has in Hong Kong, Singapore or Korea, the implications and opportunities for industrial real estate, landlords and logistics companies will be significant.
What is cross-border e-commerce? “Cross-border e-commerce” essentially means consumers buying products online from a foreign country. In general, this flow can go both ways. In China, however, this term primarily refers to Chinese consumers ordering products from places like Korea, Europe and the United States.
How does it intersect with real estate? The government has reduced the import tax for products that are ordered through approved channels. This tax discount requires the goods to be stored in bonded areas of Shanghai’s Free Trade Zone, generating warehousing and logistics needs.
What has changed and what are the implications? China’s Customs Bureau has effectively reduced the import tax on certain products ordered online from foreign countries, by applying a tax known as xingyoushui (行邮税) to goods previously covered by the import tax. The previous tax rate varied but could be up to 40% of the value of the item. After the change, that rate has been reduced significantly. Most categories of items will now be taxed at 10%. This discount will compete with unofficial importers who avoid tax by not declaring the value of their mailed goods.
Average Rent and Vacancy Rate in Shanghai’s Free Trade Zone, 2008-1H14 RMB psm per day 1.6
60%
1.4
“There are approximately 5,000 sqm of space used for cross-border e-commerce at the Pudong Airport, with a total planned area of 150,000 sqm”
- Ministry of Commerce, December 2013 “100,000-120,000 express parcels and 70,000-90,000 postal parcels pass through Shanghai Customs every day” - Xinmin Evening News, April 2014 “We have signed leasing agreements with several new foreign suppliers since the launch of Kuajingtong, and are in negotiations with several more” - landlord in the Pudong Airport Free Trade Zone, July 2014 “Cross-border e-commerce has begun to attract more and more attention from developers and landlords in the Free Trade Zone” - representative of Lingang development company, July 2014
50%
1.2 40%
1.0 0.8
30%
0.6
20%
0.4 10%
0.2 -
0% 2008
2009
2010
2011
2012
2013
1H14
Waigaoqiao Average Rent
Lingang Average Rent
Pudong Airport Average Rent
Waigaoqiao Vacancy Rate
Lingang Vacancy Rate
Pudong Airport Vacancy Rate
Source: Research, Colliers International, Shanghai, 2014
“Foreign brands can set their bonded distribution centres and bonded exhibition centres in the Free Trade Zone so their products, already stored in the area, can be quickly delivered to domestic customers. At the same time, transit trade can extend the reach of cross-border delivery.” - Lou Guangtao, GM of Sinotrans Logisitcs, Waigaoqiao Windows, July 2014
Colliers International | August 2014 | Cross-border E-commerce 1
Orders must be placed through licensed and approved channels. To that end, a website named Kuajingtong was established in December 2013 which allows consumers to order products such as clothing, shoes, milk powder and health products from abroad. The 10% tax is displayed under the price of the product, and the total, including the tax, is billed at payment. Kuajingtong is the first website to offer this service, but more can be expected. The change stems from a 2012 Central Government measure that designated five cities as pilots for cross-border e-commerce sales: Shanghai, Ningbo, Chongqing, Hangzhou and Zhengzhou. Shanghai is the first city to develop a platform to take advantage of this new policy.
Where are the opportunities, and for who? If Kuajingtong or another model proves successful with consumers, there will be a spike in demand for bonded logistics space in Shanghai’s Free Trade Zone. This will create opportunities for the owners of such property, in terms of both rental and sales values; it will also create opportunities for logistics companies who are interested in this sector to secure space early, and developers who found it hard to lease out bonded warehouse in the past. The biggest potential impact is for Lingang. Bonded logistics space in Waigaoqiao is already extremely limited. The Pudong Airport zone may handle high-value parcels but the majority of orders are expected to be delivered by sea. The combination of Lingang’s extensive shipping lines, existing available bonded logistics space and relatively low rental will make it a logical choice for companies involved in cross-border e-commerce. This potential demand will come at the same time as bonded logistics space in Lingang is seeing higher levels of absorption, following several slow years. The creation of the Free Trade Zone in September 2013 sparked interest in these facilities, particularly from companies involved in futures trading (who need storage for metals and other high value commodities). This new demand shifted the market in landlords’ favour, and supported a 13% rise in the average rent for bonded logistics facilities in 2013, from RMB1.1 to RMB1.25 psm per day. If the potential demand for cross-border e-commerce facilities is realised, this figure can be expected to grow significantly.
What to look for in the future? The Pudong Airport Free Trade Zone has been the only area approved for cross-border e-commerce to date. Kuajingtong’s 5,000 sqm warehouse is located here. Lingang has already applied to the Customs Bureau for authorisation to conduct cross-border e-commerce trading. An official approval would be the next major step towards development here.
Shanghai Free Trade Zone
485 offices in 63 countries on 6 continents United States: 146 Canada: 44 Latin America: 25 Asia Pacific: 186 EMEA: 84
$2.1
billion in annual revenue
136
million square metre under management
15,800
professionals and staff
Colliers International | Shanghai 16F Hong Kong New World Tower 300 Huai Hai Zhong Road Shanghai 20021 PRC
For further inquiry, please contact: Tammy Tang Executive Director Industrial | China +86 21 6141 3625 [email protected] Carlby Xie MCs, MRICS Director Research | China +86 21 6141 3590 [email protected]
Source: Research, Colliers International, Shanghai, 2014
Colliers International | August 2014 | Cross-border E-commerce 2
CROSSING BORDERS Online shopping goes international, creates demand for bonded logistics warehouses
Online shopping has already changed the landscape for retailers and logistics companies. But a new variation is emerging that allows consumers to buy directly from abroad, with big tax savings: cross-border e-commerce. The Pudong Airport Free Trade Zone has already been approved to operate in this sector; Lingang is now in the application process. If crossborder e-commerce develops in China the way it has in Hong Kong, Singapore or Korea, the implications and opportunities for industrial real estate, landlords and logistics companies will be significant.
What is cross-border e-commerce? “Cross-border e-commerce” essentially means consumers buying products online from a foreign country. In general, this flow can go both ways. In China, however, this term primarily refers to Chinese consumers ordering products from places like Korea, Europe and the United States.
How does it intersect with real estate? The government has reduced the import tax for products that are ordered through approved channels. This tax discount requires the goods to be stored in bonded areas of Shanghai’s Free Trade Zone, generating warehousing and logistics needs.
What has changed and what are the implications? China’s Customs Bureau has effectively reduced the import tax on certain products ordered online from foreign countries, by applying a tax known as xingyoushui (行邮税) to goods previously covered by the import tax. The previous tax rate varied but could be up to 40% of the value of the item. After the change, that rate has been reduced significantly. Most categories of items will now be taxed at 10%. This discount will compete with unofficial importers who avoid tax by not declaring the value of their mailed goods.
Average Rent and Vacancy Rate in Shanghai’s Free Trade Zone, 2008-1H14 RMB psm per day 1.6
60%
1.4
“There are approximately 5,000 sqm of space used for cross-border e-commerce at the Pudong Airport, with a total planned area of 150,000 sqm”
- Ministry of Commerce, December 2013 “100,000-120,000 express parcels and 70,000-90,000 postal parcels pass through Shanghai Customs every day” - Xinmin Evening News, April 2014 “We have signed leasing agreements with several new foreign suppliers since the launch of Kuajingtong, and are in negotiations with several more” - landlord in the Pudong Airport Free Trade Zone, July 2014 “Cross-border e-commerce has begun to attract more and more attention from developers and landlords in the Free Trade Zone” - representative of Lingang development company, July 2014
50%
1.2 40%
1.0 0.8
30%
0.6
20%
0.4 10%
0.2 -
0% 2008
2009
2010
2011
2012
2013
1H14
Waigaoqiao Average Rent
Lingang Average Rent
Pudong Airport Average Rent
Waigaoqiao Vacancy Rate
Lingang Vacancy Rate
Pudong Airport Vacancy Rate
Source: Research, Colliers International, Shanghai, 2014
“Foreign brands can set their bonded distribution centres and bonded exhibition centres in the Free Trade Zone so their products, already stored in the area, can be quickly delivered to domestic customers. At the same time, transit trade can extend the reach of cross-border delivery.” - Lou Guangtao, GM of Sinotrans Logisitcs, Waigaoqiao Windows, July 2014
Colliers International | August 2014 | Cross-border E-commerce 1
Orders must be placed through licensed and approved channels. To that end, a website named Kuajingtong was established in December 2013 which allows consumers to order products such as clothing, shoes, milk powder and health products from abroad. The 10% tax is displayed under the price of the product, and the total, including the tax, is billed at payment. Kuajingtong is the first website to offer this service, but more can be expected. The change stems from a 2012 Central Government measure that designated five cities as pilots for cross-border e-commerce sales: Shanghai, Ningbo, Chongqing, Hangzhou and Zhengzhou. Shanghai is the first city to develop a platform to take advantage of this new policy.
Where are the opportunities, and for who? If Kuajingtong or another model proves successful with consumers, there will be a spike in demand for bonded logistics space in Shanghai’s Free Trade Zone. This will create opportunities for the owners of such property, in terms of both rental and sales values; it will also create opportunities for logistics companies who are interested in this sector to secure space early, and developers who found it hard to lease out bonded warehouse in the past. The biggest potential impact is for Lingang. Bonded logistics space in Waigaoqiao is already extremely limited. The Pudong Airport zone may handle high-value parcels but the majority of orders are expected to be delivered by sea. The combination of Lingang’s extensive shipping lines, existing available bonded logistics space and relatively low rental will make it a logical choice for companies involved in cross-border e-commerce. This potential demand will come at the same time as bonded logistics space in Lingang is seeing higher levels of absorption, following several slow years. The creation of the Free Trade Zone in September 2013 sparked interest in these facilities, particularly from companies involved in futures trading (who need storage for metals and other high value commodities). This new demand shifted the market in landlords’ favour, and supported a 13% rise in the average rent for bonded logistics facilities in 2013, from RMB1.1 to RMB1.25 psm per day. If the potential demand for cross-border e-commerce facilities is realised, this figure can be expected to grow significantly.
What to look for in the future? The Pudong Airport Free Trade Zone has been the only area approved for cross-border e-commerce to date. Kuajingtong’s 5,000 sqm warehouse is located here. Lingang has already applied to the Customs Bureau for authorisation to conduct cross-border e-commerce trading. An official approval would be the next major step towards development here.
Shanghai Free Trade Zone
485 offices in 63 countries on 6 continents United States: 146 Canada: 44 Latin America: 25 Asia Pacific: 186 EMEA: 84
$2.1
billion in annual revenue
136
million square metre under management
15,800
professionals and staff
Colliers International | Shanghai 16F Hong Kong New World Tower 300 Huai Hai Zhong Road Shanghai 20021 PRC
For further inquiry, please contact: Tammy Tang Executive Director Industrial | China +86 21 6141 3625 [email protected] Carlby Xie MCs, MRICS Director Research | China +86 21 6141 3590 [email protected]
Source: Research, Colliers International, Shanghai, 2014
Colliers International | August 2014 | Cross-border E-commerce 2
