Leasing demand continued to improve in Q3 2020 owing to the quick rebound in economic activity and the release of pent-up demand. Net absorption exceeded 1.0 million sq. m, an increase of 5% q-o-q and 53% y-o-y.
Demand from express delivery firms and e-commerce platforms remained robust, while traditional retailers and wholesalers turned more active along with the recovery of brick-and-mortar retail sales. The quarter also saw leasing demand for Grade A warehouses from group-buying e-commerce platforms, such as Meituan.
Over 1.2 million sq. m of new supply was delivered in Q3, concentrated in Greater Suzhou, Chongqing, Shenyang and Wuhan. Due to the robust demand nationwide, the overall vacancy rate edged down mildly by 0.3 pps q-o-q to 15.6% but still above the average quarterly level in the past decade. That said, available space remained tight in major Tier I and satellite cities.
Led by some mid-western cities, overall logistics rents fell by 0.5% q-o-q in Q3 2020 amid elevated vacancy. Landlords in these markets are offering greater incentives, such as rental concessions, early move-in periods and shorter lease terms, to shore up occupancy.
However, rents continued to register steady growth in tier I cities and nearby satellite locations thanks to stable leasing demand and limited space availability.
Cost-sensitive tenants such as manufacturers and Third-Party Logistics (3PL) firms are advised to upgrade from low-quality warehouses to Grade A facilities as landlords continue to prioritise raising occupancy over rents. CBRE has tracked a growing number of upgrading relocations in some mid-western markets where landlords are offering competitive rents and incentives.
CBRE expect the current supply wave to continue through mid-2021, with nearly 6.9 million sq. m. of new space to be delivered in the next 12 months, most of which is concentrated in Wuhan, Tianjin, Ningbo and Chengdu. The overall vacancy is expected to peak in or around the middle of next year and then trend downwards.