Shenwan Hongyuan Group Co., Ltd. has released a research report stating that the warehousing and logistics industry underwent a significant adjustment over the past year due to shifts in e-commerce demand structure and new supply entering the market, leading to pressure on market rental rates. In 2026-2027, multiple REITs will face a concentrated expiration of over 20% of their leases. The wave of lease renewals is still unfolding, presenting a window for strategic positioning during market pullbacks.
The industry is currently characterized by oversupply, with demand largely matching new supply. For investment allocation, Shenwan Hongyuan recommends a selective approach during market weakness, focusing on three key dimensions: location, asset quality, and operational management capabilities.
The main views of Shenwan Hongyuan are as follows: Influenced by e-commerce demand restructuring and supply increases, the warehousing and logistics sector experienced a deep adjustment in the past year. Pressure on market rents has transmitted to the REITs level, with significant divergence in pressure pathways based on lease structures: market-rate lease types face direct market volatility, with occupancy rates and rents generally under pressure; affiliated entity master-lease types benefit from long-term contract stability, ensuring highly stable cash flows during the lease term. However, the contracted annual rent increases can create a valuation "trap" in a down market—rents continue to rise off-market during the lease term, but upon renewal, they must revert to market levels in a single step, resulting in a steeper decline compared to the gradual adjustments seen in market-rate leases. An example of this "premium regression" is the 16% and 30% rent reductions for the Chongqing and Langfang projects, respectively, of the Harvest JD Warehousing REIT following lease renewals. In terms of secondary market performance, this REIT's price fell approximately 10% before the renewal announcement but rebounded around 10% after the renewal was finalized, largely recovering the losses. This indicates that high-quality assets often experience excessive sell-offs during renewal disruptions, creating a window for subsequent recovery.
In 2026-2027, multiple REITs will see a concentrated expiration of over 20% of their leases. The wave of lease renewals continues, making the current pullback a potential entry point.
**Industry Overview: Oversupply and Widespread Rent Declines** On the supply side, new logistics property supply in China reached 1.18 million square meters in Q3 2025, a year-on-year decrease of 40%, indicating a slowdown in new project deliveries. New supply was concentrated in cities like Shanghai, Guangzhou, and Dongguan. An additional 4 million square meters is projected for 2025-2026, led by five provinces and municipalities including Guangzhou and Shanghai.
On the demand side, affected by trade friction and e-commerce transformation, net absorption in major logistics markets was approximately 1.23 million square meters in Q3 2025, showing a year-on-year contraction but roughly matching new supply. High tenant cost sensitivity, combined with new supply, has led to pressure on both rents and occupancy rates. By March 2026, the average monthly rent for general warehousing in 32 cities was RMB 23.22 per square meter, with an average vacancy rate of 15.82%, placing these metrics at the 0th and 95th percentiles, respectively, relative to levels since 2020. Eight cities, including Guangzhou, Dongguan, and Jiaxing, effectively improved vacancy rates through rent reductions, while 15 cities, including Beijing, Shanghai, Nanjing, and Wuhan, experienced declines in both volume and price.
**Regional Analysis: Divergence Across Key Hubs** As of the end of Q3 2025, the Yangtze River Delta held the largest existing stock. The Pearl River Delta had the lowest vacancy rate and the highest average rents, followed by the Beijing-Tianjin-Hebei region and the Yangtze River Delta, though the latter two regions saw vacancy rates exceeding 25%.
1. **Beijing-Tianjin-Hebei:** Rents in core cities Beijing, Tianjin, and Langfang continued to decline. Beijing saw over 1 million square meters of new supply in 2025, while new supply slowed in Langfang and Tianjin, leading to market recovery as they absorbed spillover demand. 2. **Yangtze River Delta:** Entering a supply peak since 2023, this region accounted for 46% of the national stock by end-Q3 2025. Cities within the region have transitioned to a tenant's market, and price competition has stimulated demand release in markets like Changshu and Taicang near Shanghai. 3. **Pearl River Delta:** Despite having the lowest vacancy rate and highest average rent, rents fell sharply by 13% quarter-on-quarter in Q3 2025 due to slowing e-commerce demand and new supply impact. New supply expected from Q4 2025 to 2026 is equivalent to the existing stock, suggesting continued market pressure. 4. **Chengdu-Chongqing:** This market is dominated by the two cities, with stable absorption in Chengdu and Chongqing and a marginal narrowing in the quarter-on-quarter rent decline. 5. **Mid-Yangtze River:** Wuhan remains in a inventory digestion phase with persistently declining rents. Approximately 570,000 square meters of new supply is expected from H2 2025 to 2026, predominantly from market-rate operators, which is likely to intensify local competition.
**Investment Strategy: Focus on Three Dimensions for Selective Buying** The recommendation is to selectively invest during market weakness based on three dimensions. First, prioritize locations where supply and demand are stabilizing. Second, assess asset quality, specifically project scarcity and tenant mix. Even in high-supply regions, scarce projects may hold independent investment value. Third, evaluate operational management capabilities, focusing on absorption efficiency and active management skills.
Based on an independent weighted scoring of underlying projects within warehousing logistics REITs, considering factors like asset condition, location, lease terms, tenants, and management capabilities, Jiutong REIT, JD REIT, and SF REIT ranked highest. Among master-lease type REITs, both SF REIT and Sinotrans REIT have leases expiring in 2026-2027.
Risks include macroeconomic volatility, declining cross-border e-commerce demand, a slower-than-expected industry recovery, and persistently high supply levels in the short term.