Investors expected to pour US$60 billion per year into sector by 2025
Insight
APAC L&I investment poised to double within 5 years
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Investment into Asia Pacific logistics and industrial real estate will double within the next three-to-five years as investors look to increase exposure to the asset class. JLL (NYSE: JLL) forecasts logistics and industrial investment volumes to rise to $50-60 billion between 2023-2025 from US$25-30 billion in 2019-2020.
Logistics and industrial buildings, which comprise of warehousing, supply chain and manufacturing facilities, will see increased investment due to rising occupier confidence in the sector. In recent years, due to the evolution of e-commerce and third-party logistics (3PL) services, both investor engagement and occupier composition within logistics and industrial real estate has changed significantly, according to JLL’s recently published report A New Trajectory for Logistics Real Estate in Asia Pacific.
“Across Asia Pacific, structural changes to asset allocations and supply chain networks have converged to accelerate logistics sector investor and occupier demand. Increased investment into logistics and industrial real estate mirrors changes in occupier strategies for higher quality assets and the shifting composition towards ‘new economy’ occupiers, based largely around e-commerce growth and technology-enabled supply chains,” says Tom Woolhouse, Head of Logistics and Industrial, Asia Pacific, JLL.
Contributing to swelling investment volumes are a growing number of portfolio and mega deals and several macroeconomic factors. The urban population of Asia Pacific is set to rise 41 million per year between 2020 and 2025. In the same period, an additional 760 million people will join the middle class, and incomes will grow 4% per year, presenting significant growth potential for the sector.
According to JLL research, logistics funds doubled assets under management in 2020 and continued to accelerate further in 2021. In the last six months, a record number of mega deals transacted in the Asia Pacific logistics and industrial sector, including ESR’s purchase of the Blackstone Milestone portfolio in Australia, even as yields compressed over the last 12 months, outpacing interest rate declines.
“The attractiveness of the logistics and industrial asset class will only intensify in the eyes of investors. In reality, institutional investors have just begun strategic reallocation of their portfolios and need to increase their exposure to logistics assets by 40-50% in the near term as they look to allocate capital into stable income producing assets,” says Regina Lim, Head of Capital Markets Research, Asia Pacific, JLL.
Investment is projected to be strongest in South Korea, Australia and China, given availability of new modern logistics stock. The inflow of funds focused on these countries and resilient demand from e-commerce penetration will continue to offset yield compression and stiff competition for assets. According to JLL analysis, robust demand-supply dynamics will support further yield compression, possibly by a further 50-100 bps.
Meanwhile, Vietnam, currently one of the fastest growing e-commerce markets in Southeast Asia, has seen a massive acceleration of e-commerce in 2020-2021 as shoppers stuck at home had flocked online. “Logistics is crucial to the future success of the Vietnamese e-commerce market. Many foreign logistics providers are making efforts to meet the rapidly growing needs of the market,” says Paul Fisher, Country Head of Vietnam, JLL.
Due to the consistent increase in core and core-plus funds into the sector over recent years, there is potential for more sale and leaseback transactions in the sector across Asia Pacific. Many owner occupiers are exploring this option to free up capex to upgrade facilities and implement new technological solutions into warehousing and supply chain management.
“The increasing adoption of technology and automation solutions coupled with a better understanding of the rising importance of Environmental, Social and Governance (ESG) and human-centric design requirements all point to a new trajectory for the logistics sector. Ultimately, this new trajectory is changing the occupier mix significantly and supporting the investment thesis for prime, modern logistics real estate,” says Peter Guevara, Director, Research, Asia Pacific, JLL.
Paul concludes: “Compared to regional peers, Vietnam's logistics market is in a nascent stage. The investment we are seeing into infrastructure, as well as from the private sector into developing state of the art facilities, is well needed. Driven by growth in the e-commerce and manufacturing sectors, as well growing domestic consumption, we believe that the Vietnam logistics market will continue to thrive and evolve in the same way we have witnessed in other markets.”