APAC investors to spend up to USD200b on logistics assets over the next five years

Investors are expected to increase their logistics exposure from 16% to 20-23%.

According to JLL, logistics funds raised in 2020 doubled and continued to accelerate further in the first half of 2021 as institutional investors started to strategically reallocate their portfolios to enhance diversification and resilience. During the pandemic in 2020, institutional investors grappled with economic lockdowns, travel restrictions and mandatory work-from-home directives that disrupted rents and occupancies of their retail, hotel and office assets.

JLL adds that the increase in allocation to the sector has resulted in robust growth in investment volumes. In 2020, overall commercial real estate transaction volumes were flat, but logistics and multifamily investments rose 25-30% year on year.

Here’s more from JLL:

In the last four months, there has been a sharp increase in large portfolio deals in the sector. In April 2021, ESR and GIC jointly acquired a USD 2.9 billion Australian logistics and industrial portfolio. In the first quarter of 2021, LOGOS invested USD 1.3 billion in Moorebank Logistics Hub in Sydney while Blackstone acquired a 22 million sq. ft. logistics platform in India from Embassy and Warburg Pincus for an enterprise value of USD 700 million. In late 2020, Blackstone also invested USD 680 million in a 70% stake in Guangzhou International Airport R&F Integrated Logistics Park.

Investment volumes are expected to pick up significantly in South Korea, Australia and China. Since January 2020, logistics funds raised for these countries have increased by 1-7 times, compared to the prior five years. In contrast, logistics funds raised for Japan and India assets have moderated.

Despite the strong growth in 2020, we expect volumes to accelerate further. According to ANREV, Asia Pacific institutional investors currently have around 66% of their portfolios allocated to office and retail assets, and just 16% and 6% allocated to logistics and residential assets respectively. This is more skewed than investors in Europe and the US, where about 50% of portfolios are allocated to office and retail assets. 

Ideally, portfolio managers would prefer (1) to increase exposure to a third of their portfolios allocated to defensive sectors including logistics and residential assets; (2) a third to growth and consumption oriented sectors including hotels, retail and development and (3) maintain a third to office assets where liquidity is more abundant, assets are more available for investments and less operationally intensive.

We estimate that Asia Pacific investors could seek to increase their exposure to logistics assets to 20-23% from 16% currently. This allocation increase of 4%-7% implies an additional USD 200 billion investment into logistics assets over the next few years, potentially USD 40-50 billion annually if executed over 4-5 years. This could more than double the investment volumes in 2020.

More logistics funds with core and core-plus strategies were raised in the last two years. These funds now make up 40-50% of total logistics funds, from 20-30% five years ago. 

As more institutional investors make logistics a core part of their portfolios, they focus on high quality assets anchored by global or regional occupiers. These tenants have strong credit quality and can commit to long leases. Annual rent escalations are also frequently structured into their lease agreements. These assets are increasingly available as more multinational e-commerce operators and 3PLs demand more space. 

Sale-and-leaseback transactions will likely rise as a result, as these assets provide a ‘win-win’ solution for the corporate occupier that needs to monetise the asset for operational needs while allowing the institutional investor access to a steady rental income stream. Overall, sale-and-leaseback transactions exceeded 10% of volumes in 1Q2021, from 7% in 2015-2020.