Alibaba’s online shopping site AliExpress is considering setting up a logistics hub in South Korea to strengthen its presence in the country. The Chinese company announced plans to invest $76 million (100 billion won) in the Korean market in March this year and vowed to spend $7.6 million over the next three years to tackle the problem of counterfeit goods on the site last week.
The retailer’s plan to expand business in Korea is fueling interest in the country’s high-end logistics centers, according to real estate experts.
Vacancy rates of logistics centers, otherwise known as warehouse spaces that store goods, have been on the rise this year in Korea after too many warehouses and distribution centers were built during the Covid-19 pandemic, resulting in an oversupply of logistics centers.
However, analysts and industry insiders say that demand for specialized urban logistics centers, which are used by global online retailers such as AliExpress, remains strong.
A total of 114 warehouses, 10,000 square meters or larger, were registered this year in Korea, according to real estate group Colliers on Dec. 11. This is the highest number of new warehouse space registrations on an annual basis since 2017.
The flood of new warehouses this year is a byproduct of the surge in demand for warehouse space in 2020 when pandemic lockdowns forced people to buy more online and made companies realize that they had to strengthen their supply chains. Many of the warehouses that began construction during the pandemic were completed in the first half of this year.
Warehouse space increased significantly in the Seoul metropolitan area, with 960,000 square meters built in the first half of the year, up 37 percent from the second half of last year, according to commercial real estate company RSQUARE.
However, leasing of these facilities is proving to be increasingly difficult as supply outstrips demand, leading to a rise in vacancy rates. The average vacancy rate of logistics centers in the Seoul metropolitan area was about 10 percent in the first half of the year, up from 4 percent a year ago. The vacancy rate of cold storage facilities, spaces that store food and other goods at temperatures below freezing, is estimated to be as high as 30-50 percent depending on the region.
Despite faltering demand for warehouse space, experts say that demand for urban warehouses will remain solid in the future. E-commerce companies like AliExpress need micro fulfillment centers (MFCs), which are small-scale storage facilities in densely populated urban locations. MFCs are located closer to the consumer to improve delivery times, which makes them more valuable than the average warehouse space.
Urban logistics centers are relatively scarce compared with other warehouse spaces, so companies that manage to secure these facilities are likely to gain an upper hand in the market.
“To compete with AliExpress, domestic e-commerce platforms such as Coupang are more likely to focus on securing high-quality warehouse space,” said Lee Kyung-ja, a researcher at Samsung Securities.
This article was originally published on Dec. 11, 2023.
