Accelerating rents in many logistics and industrial (L&I) properties will provide a buffer for returns in 2023. And while peak rental growth is now in the 2022 rear-view mirror, the forward-looking view is for rents to trend up, albeit at a slower pace.

An important outcome of surging rents is positive rent reversion. Assets leased 3-5 years ago at average market rents will now be significantly under-rented today across many markets. This potentially means immense rental upside for portfolios or assets with upcoming rental expiries in 2023 and 2024.

The chart below shows the potential rent reversion (i.e. the change in rent between an expiring lease and the rent in a newly signed lease) in some of the major markets in Asia Pacific For this analysis, we assumed a single-tenant asset covered by a standard market lease. While individual assets will show different results, there is a strong positive rent reversion story at a market level. Sydney and Melbourne are the clear outperformers. An asset in Sydney’s Outer Central West leased five years ago and with expiry in 2023/2024 could command rent that is 50% higher. Similarly, assets in Melbourne’s West precinct could fetch more than 30% upon expiry this year or next year.

Figure 1: Potential rent reversion in Asia Pacific’s logistics and industrial real estate market