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Property investors are looking to industrial for resilience

by • September 23, 2020 • InvestmentComments (0)135

Property investors in Asia Pacific are increasingly looking to industrial assets to satisfy more defensive strategies during the COVID-19 pandemic.

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In the last six months, property investors have raised over US$7 billion targeting Asia Pacific logistics assets, according to JLL. Major transactions and partnerships have included ESR partnering with GIC to form an AUD1 billion build-to-hold fund in Australia, the establishment of a joint-venture between CPPIB and APG with ESR to invest over US$1 billion in Korea, and GLP raising US$2.1 billion for its China Income Fund I.

“Throughout the pandemic, the industrial sector has maintained its defensive investment position and been more resilient to the impact than other sectors thanks to its operation criticality. But, really, COVID has just accelerated many of the longer-term secular trends that are supporting investment into the sector,” says Stuart Ross, Head of Industrial and Logistics, Southeast Asia, JLL. “The inflow of capital has resulted in more complex transactions and greater participation by both established and new investors into the sector.”

In line with the economy, real estate investment volumes in Asia Pacific are down this year, falling 32 percent in the first half of the year from a year earlier, according to JLL data. However, industrial transactions were just 6 percent lower than the same period in 2019, which was a bumper year for the sector.

Given the high demand, property investors are pivoting towards platform deals rather than individual assets, says Ross.

“By acquiring a platform, investors are more likely to secure tenant networks and can achieve scale quickly,” he says.

Online shopping makes an impact

During the pandemic, the surge in online shopping – already a major driver for warehouse investment in recent years – has only accelerated rising demand.

“The pandemic will accelerate trends already in play across the sector, such as increased internet penetration rates, expansion of online grocery, omnichannel retailing, and the integration of technology into logistics and warehousing,” says Peter Guevarra.

As cities continue to grow across Asia Pacific, so too will the need for warehouses near city centers that provide that last push in getting the goods to consumers.

“Last mile logistics requires sizable upgrades for many investors and is likely to need more investment dollars to meet demand from the region,” he says.

As a result, both property investors and occupiers are increasingly shifting focus to delivery optimisation, cross-docking centres, and the use of autonomous vehicles.

“Successful last mile strategies will look to implement innovative solutions, modern processes, digital transformation, and the latest technological developments to meet demands,” says Guevarra. “Urbanization-driven concepts like multi-storey logistics developments will need to be considered more by both investors and occupiers looking to gain a larger footing in the rapidly changing region.”

Traditionally a staple of densely, populated cities with limited logistics land availability and relatively high land prices, multi-storey logistics developments are now emerging in Australia and India, complementing land highly urbanized cities like Tokyo and Hong Kong.

“Logistics is increasingly a longer-term stability story which investors do crave in times of uncertainty,” Ross says. “Capital values are forecast to stay relatively firm, with modest yield compression expected in some markets across the region.”

A recent Knight Franck research seem to concur with JLL’s findings that property investors may be increasingly looking to industrial assets to satisfy more defensive strategies.

Knight Frank on 18 September 2020, released its Asia-Pacific Warehouse Review which tracked prime Asia-Pacific warehouse rents across 17 key cities, registering an average change of -0.02% half-on-half despite COVID-19. Going forward, Knight Frank expects average rental growth between 3% to 5% by the end of 2020.

Highlights of Asia-Pacific Warehouse Rents:

  • Asia-Pacific warehouse rents market conditions for 16 of the 17 cities tracked are expected to remain stable or improve over the next 12 months. The positive outlook for growth in the second half of 2020 is due to higher space appetite from e-commerce players and essential commodities.
  • Tokyo recorded the highest half-on half rental growth at 4.2%, due to healthy take up rates and the lack of available prime assets within the city.
  • Shanghai warehouse markets recorded the healthiest rental growth compared to Beijing and Guangzhou, at 3% half-on-half, led in part by a pickup in storage demand from cold chain operators.

Tim Armstrong, Head of Occupier Services & Commercial Agency, Asia Pacific at Knight Frank says, “The outlook for industrial markets remains resilient due to robust demand from the e-commerce and essential goods sectors, as well as additional requirements for inventory storage to mitigate supply chain disconnects.”

Daniel Ding, Head of Capital Markets for Land & Building, International Real Estate & Industrial, Knight Frank Singapore, shares, “It has become clear that the winner coming out of this health crisis is very much some specialist sub-sectors within the industrial asset class, including institutional-grade warehouses. We expect rents to stabilise and gradually trend upwards in the coming months.”

Industrial property market emerged one of the most resilient across the property sectors says a recent analysis of JTC Q2 2020 Industrial property statistics.

Ms Tricia Song, Colliers International’s Head of Research for Singapore, commenting analysing that industrial property market emerged among most resilient sectors from the JTC Q2 2020 Industrial property statistics said:

“The Singapore industrial property market emerged one of the most resilient across the property sectors (retail, office, hotel, residential), amid the global coronavirus (COVID-19) pandemic, as seen by continued warehouse demand supported by the accelerated adoption of e-commerce and government’s stockpiling of essential goods.”.

Ms Song added: “Overall, we are cautious about Singapore industrial market’s outlook for this year, and forecast the general industrial market to remain weak in 2020.”

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