Ride the Korean e-commerce wave: Industrial real estate investment opportunities

Savvy industrial investors can get in on the country’s expanding e-commerce market by investing in logistics.

April 10, 2019

To say Koreans love to shop online is an understatement. In 2018, South Korea’s e-commerce penetration rate – the percentage of sales made online compared to all retail sales – was the highest in the world at 18 percent; and it’s forecast to rise above 30 percent by 2021. 

E-commerce revenue in the country is predicted to reach US$68.5 billion in 2019 and rise to US$80.3 billion by 2023. Food & Personal Care is the favorite category among shoppers, with revenue forecast to rise to US$17.8 billion in 2019. (Statista)

So how can savvy industrial investors get in on the country’s expanding e-commerce market? By investing in logistics.

Key drivers of demand

Steady economic growth and the rapid expansion of e-commerce retailers such as Coupang, Wemakeprice, 11street, G-Market and TMON is driving demand for both industrial real estate (primarily in Greater Seoul) and for third-party logistics companies (3PLs), which provide outsourced logistics services.

South Korea is the fourth largest 3PL market in Asia Pacific and growing 7.8 percent annually – faster than Japan, Australia and Singapore. Leading 3PLs include domestic players such as CJ Logistics and Lotte Logistics, and several international providers.

Speed of delivery is critical to continued growth, with the popularity of mobile shopping and many retailers’ promises of same-day delivery. Yet, the expansion of Seoul’s industrial market has not kept pace with rising consumer and investment demand. The city needs to rapidly expand and transform its inner-city logistics capabilities to meet consumer expectations.

Government supports modernisation and transformation

Recognising this, the government has launched an initiative to create inner city logistics centres, or “e-Logis Towns”. Obsolete truck terminals have been renovated and converted into small-scale modern inner-city logistics hubs suitable for e-commerce, B2C delivery and quick delivery schedules.

The terminals have superb accessibility to districts and well-established transportation infrastructure. According to the government roadmap, they will be transformed into futuristic logistics hubs with robotic and Internet-of-Things (IoT) technologies.

The government is also following a National Logistics Master Plan 2016-2025, which outlines the development of smart logistics technologies, including drones and robotics.

Investors market remains robust

This wave of building and investment has drawn significant interest and capital from international investors, including GIC, APG, Angelo Gordon, Warburg Pincus and Blackstone.

The weight of foreign capital has been the impetus behind a series of new generation developments and high-specification logistics projects across the country.

New supply has been strong in Greater Seoul, with a relatively high level of completions. Many firms are consolidating their business operations into new, more efficient space. Companies upgrading from older facilities have also contributed to the uptick in supply.

“The potential for investors is expected to continue, with demand for newly completed product with modern specs likely to remain strong. Current growth drivers include fresh food and grocery delivery, with strong growth expected to continue,” said Sungmin Park, Head of Research, Korea at JLL.

He added: “As e-commerce transforms urban logistics, South Korea may be developing the model for other Asia Pacific markets that are experiencing their own e-commerce booms.”

Follow us on LinkedIn for updates and insights on logistics and industrial investing opportunities in Asia Pacific in 2019.

Read JLL’s Logistics: Beyond warehousing to find out why industrial and logistics are the next big thing in Asia Pacific. The whitepaper features in-depth, market-by-market analysis.

How is e-commerce transforming logistics?