Investors pivot to logistics as the office sector continues to disappoint

Industrial investments grew 47% to USD6.7b in Q3.

Industrial real estate investment volumes in Asia Pacific remain resilient. In a report, JLL revealed investments reached USD 6.7bn in Q3 2023, marking a 47% yoy increase and USD 375mn shy of office volumes.

Here’s more from JLL:

Bearish outlook toward office continued, spurring investors to pivot toward logistics; some cornerstone investors have already started or are planning to reallocate capital from office to logistics. 

Much anticipated large-scale transactions came through including the sales of NPS stakes in Dexus fund for USD 367mn in AU and Invesco’s divestment of Logisco Yangji for USD 356mn in SK, serving as benchmark cases, providing repricing evidence. 

The sector is facing greater repricing risk especially in AUS and SK; greater negative carry than office remains a challenge in the former whilst higher cost of debt than office acts as a deterrent in the latter.

• China: slower leasing demand along with large supply pipeline softening rental growth outlook; muted demand for recap opportunities with fewer capital sources in the market 

• Japan: competition among offshore capital intensifying with brand new capital (SG, SK) entering the fray; many pursuing opportunities at regional cities and more distant outer areas of greater Tokyo 

• South Korea: recent deals and campaigns indicating yields have moved up to mid 5% with potential for further softening; overseas buyers remain engaged but are seeking higher returns 

• Australia: GPs face no refinancing gap/redemption risk due to capital gains; some foreign LPs want to exit but limited transactional evidence and repricing pressure holding back trades