Our 10 predictions for 2024
Year-ends are the time when everybody is allowed to have a say on future predictions, even though we are not fully qualified futurologists. After all, isn’t “anticipating the future” what we, company managers, are doing every day? Isn’t our P&L the mirror of the accuracy of our past predictions?
So… here are our anticipations for all things related to the 2024 logistics real estate in China. 3 main reasons justify each one. Stay tuned… in our next communications, we will later fully develop the most interesting ones!
1- Chinese interest rates (PBOC rates) will go down sharply because…
a. World inflation is on the verge of being controlled and deflation is even looming in China,
b. It will lower the value or the RMB, which is good for export,
c. China needs domestic growth and that’s the cheap & easy way to do it.
2- Logistics cap rates will resume their compression because…
a. They loosely follow interest rates,
b. Logistic project risk profile compares favorably with other asset types that already enjoy lower cap rates,
c. The contra-cyclical value of logistics projects is being proven by the current crisis.
3- The cost of energy will plummet because…
a. Russia and Iran will flood the market to gently pressurize their OPEC allies,
b. Other major oil producers have diversified their economies, therefore are less sensitive to a temporary price reduction,
c. So many energy sources are being installed and upgraded in China (solar, wind, geothermal, coal…) that overproduction is looming.
4- The cost of goods transportation will plummet because…
a. It is linked to the cost of energy, and (in the case of electric traction) energy is anyway a very small portion of running costs,
b. Market disruption: autonomous vehicles will generalize, changing the business model to a mostly fixed-cost model,
c. With decreasing cost of vehicles and the arrival of new entrants, over-supply will appear fast in the transportation market.
5- Last mile distribution will become a central issue because…
a. It is currently the bottleneck of all retailers; whoever masters it will win massive market shares,
b. The tools are there to make this technological jump (AI, IoT, metaverse…),
c. Domestic demand will grow, in great part through e-commerce, increasing the last mile problem and spreading it to lower tier cities.
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6- FDI will start flowing back into China because…
a. There is no alternative to mass capital deployment in Asia,
b. In spite of all rhetoric, actions of the CN Government will have to show compromise if China wants to return to a growth path,
c. Real estate yields are attractive in China, especially in real terms, especially in logistics.
7- The cost of labor will stop increasing in China because…
a. Lower-qualification jobs are rapidly replaced by automation or off-shorized,
b. Qualified jobs are not numerous enough yet,
c. AI is destroying all levels of jobs at a large scale in China.
8- Automation will change the logistics business because…
a. While automation is not a major game changer for warehouse location,
b. It is a game changer for the type of building suitable for modern logistics,
c. And also a game changer in the business model of logistics.
9- Industry will continue striving in China because…
a. China + 1 means China should still enjoy 50% of the world’s off-shorings,
b. China will still be for a long time a unique offering of abundant industrial competences and all-out competition (meaning price competitiveness),
c. China is becoming an R&D powerhouse with excellent continuity between research and industrial application.
10- Major infrastructures will be tested in 2024
a. Internet, banking systems, currencies, energy infrastructures, international transport routes, information systems will all be tested by globally disruptive forces,
b. This will have negative impacts on consumption, growth and therefore logistics,
c. But it is in the interest of all major players that these infrastructures hold.
Let’s meet again in January 2025 to see which of these predictions have come true!