Logistics investing in Asia Pacific: not why, but how?

Heard the buzz about logistics in Asia Pacific but don’t know how to get in the game? You’re not alone.

April 09, 2019

Despite the growth potential, institutional investors have remained under-invested in industrial real estate in Asia Pacific. That’s changing fast as the logistics industry expands rapidly in the region.

The challenge: private equity opportunities in the core logistics sector can be hard to find. Investors need to evaluate their objectives and appetite for risk – and get creative.

Investment in real estate on the rise

A recent survey indicated that more than half of all institutional investors globally expect their Asia Pacific real estate allocation to increase over the next two years. And non-listed real estate funds are the clearly favored route to market in the region. (ANREV)

It’s no wonder. The region remains the fastest growing in the world with its strong population growth, rapid urbanisation and emerging middle class.

Complementing these underlying macro drivers are structural shifts in the industrial and retail sectors and the continual advancement in technology and automation.

E-commerce drives logistics growth

The rapid expansion of e-commerce and associated 3PL demand in Asia Pacific is the powerhouse factor driving growth in the logistics real estate sector. In China, while trade tensions with the U.S. and a slowing economy are a continuing concern, demand for modern logistics space with the latest tech continues. In India, e-commerce is at an early stage but growing fast, leading to new opportunities. E-commerce is also on the rise in large Southeast Asia markets – Thailand, Indonesia and Vietnam.

According to the World Bank, five Asia Pacific countries – Japan, Singapore, Hong Kong, New Zealand and Australia – are among the top 20 countries for logistics performance (Logistics Performance Index[1]). South Korea, China and Taiwan ranked in the top 30 best performing markets globally, with four Southeast Asian countries in the top 50.

Yet, the sector in many markets is still in the early stages of institutionalisation, and with limited infrastructure in place. As a result, most funds tend to be on a higher risk spectrum with a greater development component.

Logistics investing: think local

In Asia Pacific, the private real estate funds landscape for industrial investments can be broadly sectioned into:

1.       Single country vehicles

2.       Pan-regional multi-sector funds with an allocation to industrial

Market complexities and regulatory regimes mean that most single country industrial funds are established by domestic managers or pure-play industrial operators who have extensive experience and footprint in the targeted market.

“Logistics as a sector is highly localised, requiring licensing for land zoning and deep understanding of local market conditions. It’s critical to find players with a proven track record,” said Peter Guevarra, Director, Research, Asia Pacific at JLL.

Over the last 18 months, there has been increasing activity from several of these specialised players venturing into new markets or expanding into existing ones. They do this by either deploying more dry powder at the asset level or by putting capital to work via M&A activities.

Unlike pure-play industrial operators, many regional and global fund managers do not have the access, expertise and market knowledge to successfully develop and manage industrial assets. So far, there is also limited investment opportunity to create a sizeable pan-regional industrial fund, given the shortage of supply in a number of tightly held markets across the region. Depending on the underwriting, investment thesis and guidelines, most multi-country funds seeking to invest across multiple sectors would have some allocation to the industrial sector.

Offshore investors who are new to Asia and seeking low risk investments would typically invest in Pan-Asia open-end core funds. These funds are often the gateway vehicle for investors to enter the region, typically employing the strategy of acquiring modern institutional-grade industrial facilities in prime locations.

A strategy further up the risk spectrum would see fund managers tapping into assets in secondary locations, seeking assets that require value-add works, or engaging in development projects such as build-to-core or build-to-suit.

What’s certain is the market is opening up and several routes exist for sophisticated investors.

[1] The Logistics Performance Index is an interactive benchmarking tool created to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance.  The LPI 2018 allows for comparisons across 160 countries.

Read JLL’s Logistics: Beyond warehousing to find out why industrial and logistics are the next big thing in Asia Pacific. The whitepaper features in-depth, market-by-market analysis.

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