An estimated $200 billion worth of fresh capital is likely to be injected into Asia Pacific’s logistics sector in the next four to five years as global investors look to increase their exposure in the region, Tom Woolhouse, JLL’s head of logistics and industrial for Asia Pacific, told Mingtiandi in an exclusive interview on Tuesday.
“The investor sentiment barometer has seen 9 out of 10 investors plan to increase their assets under management in logistics in 2022 and beyond,” Woolhouse said, as they estimate APAC investors beefing up their exposure to the region’s logistics to 20-23 percent of the portfolio from just 16 percent last year.
Speaking at the same program, dubbed Warehouses and Asia’s New Economy on MTD TV, ESR-Logos REIT’s manager deputy chief executive officer Karen Lee pointed to the burgeoning e-commerce sector and robust demand for quality space in continuously driving demand for warehouses in the region.
The funding surge foreseen by JLL amounts to over four times the $48 billion invested into APAC logistics last year, with that 2021 level already representing a 50 percent upswing from the 2019 mark, based on a separate study by JLL, as interest in warehouses surged during the pandemic.
Sheds Move Center Stage
In the opening session of the third MTD TV Asia Logistics Forum, which is sponsored by Yardi, Woolhouse predicted that commitments to logistics opportunities are unlikely to slow down over the near term, given the still abundant quantities of cash ready for deployment worldwide as global investors continue to look for openings to expand their exposure to APAC logistics strategies.
Among the factors boosting the sector’s appeal, according to the senior broker, is the relative shortage of investment quality logistics facilities as well as the higher yields offered by logistics assets in the region, compared to markets in North America and Europe.
“Globally if we look at equity allocators, we are underweight to real estate, we are underweight to APAC and we are underweight to logistics in APAC – these are three drivers that people are going to need to take these markets seriously,” the JLL executive said. “Many of the APAC markets still offer significantly more yield than many of the mature markets in the US with many of those markets well below three percent.”
Investment in the region’s logistics segment has outperformed during the pandemic, with data from MSCI-RCA showing that acquisitions of income earning warehouse properties nearly doubled last year from 2020 levels to reach $56.4 billion.
While 2021 logistics deals were up by 141 percent compared to the 2015-2019 average, transactions in the office segment last year exceeded pre-pandemic levels by just 5 percent, while the retail sector inched up by just four percent versus the same five-year average, according to MSCI-RCA.
From her perspective managing one of the ten largest REITs on the SGX, Lee said she expects growth in online shopping, increased logistics investment and a drive for more robust supply chains as the major drivers in boosting demand for warehouse space, especially in E-Log’s home territories of Singapore and Australia.
With nearly a quarter of the trust’s assets under management located Down Under, Lee said her team plans to further expand E-Log’s footprint in the country given the longer leasehold tenures available for industrial assets there and the growing demand for high quality facilities.
“Demand for logistics space is similarly strong for Singapore for various reasons such as growth in e-commerce, transshipment, while the cap rates are not as compressed as Australia. Singapore still delivers decent yields in view of the political stability and transparent business environment,” Lee said, adding that the Lion City’s reputation as a regional hub continues to attract major logistics players like FedEx.
Not Business as Usual
With E-Log having recently been formed from the merger of ESR-REIT and ARA-Logos Logistics Trust, Lee said it will “not be business as usual” for the enlarged entity, as her team works to integrate existing operations, acquire properties in the new economy segment and divest non-core assets to rebalance the portfolio.
“Speaking on behalf of E-Log, we’re just getting started now as a larger REIT now, we have the scale to undertake larger transactions and leverage on our sponsor’s integrated platform,” she said. “We are looking to rebalance the E-Log portfolio, not only via acquisitions but also by looking to divest some non-core assets and strengthen portfolio metrics as we expect our focus on our growth in the new economy sectors, including logistics and high specs space which has proven to be resilient and perform well.”
She said the trust will continue to focus on investing in the industrial sector and will not have a drastic change in scope of activity, especially now that the sector is viewed by investors as a hedge against inflation and rising interest rates.
“I think investors are keen on the logistics space especially now with interest rate hikes. I would say that we are in a sweet spot right now, and investors typically view real estate as a good hedge against inflation versus stocks and bonds, for example,” she added.
E-Log began trading on the Singapore exchange last week as a result of the merger of ESR-REIT with ARA Logos Logistics Trust in April. The merger followed ESR’s $5.2 billion takeover of Singapore-based ARA Asset Management early this year.
Next Stop: China
The Mingtiandi Asia Logistics Forum will continue next week with a panel on logistics investments in China on Tuesday, 17 May where industry leaders from LaSalle Investment Management, Cushman & Wakefield, SC Capital Partners and Baker McKenzie will share their perspectives.
The China session will be followed by a panel discussion focused on Japan on Thursday, 19 May featuring experts from GLP, EQT Exeter and APG Asset Management.
Later in the month, Mingtiandi will turn to logistics investment in South Korea on 24 May, for a session with speakers from ESR Kendall Square REIT, LaSalle Investment Management, Hines and JLL. A second show that same week, on Thursday 26 May will turn the spotlight on emerging markets like India and Vietnam with speakers from CPPIB, Cushman & Wakefield and Vietnam’s BW Industrial.
The show will conclude on Monday, 30 May, with a panel on e-commerce and innovation in the warehouse sector, featuring speakers from ESR, Cushman & Wakefield and more.