APAC institutions eye industrial, logistics real estate

Nov 14, 2023

Sovereign wealth funds, pension funds and insurers are reallocating property portfolios to tap opportunities across the region as e-commerce, automation and relocation of manufacturing drive growth.

APAC institutions eye industrial, logistics real estate

Institutional investors in Asia-Pacific are showing increased interest in industrial and logistics real estate in the region as the market segment matures, according to industry professionals.

Industrial and logistics transactions accounted for 29% of transactions across all segments of Asia-Pacific’s real estate market during the first 10 months of 2023, up 5% from the same period in 2022, according to data from real estate services firm Colliers,

Harry Tan
Nuveen Real Estate

“That’s pretty consistent with what we’re seeing,” Harry Tan, managing director and head of APAC research and strategic insights at Nuveen Real Estate, told AsianInvestor.

“Given weaker capital market sentiment, investors are being a lot more selective in their acquisitions. However, the industrial and logistics sector continues to benefit from a lot of the structural tailwinds we’ve seen before, during and post the COVID-19 pandemic.”

POWERED BY E-COMMERCE

Tan, along with other experts, identified e-commerce as a particularly important driver of current and future investment, saying: “We’re seeing a lot more operator-tenant demand for last-mile logistics, and that’s driving more investment in those facilities.”

Regina Lim, head of research for APAC at M&G Real Estate, pointed to increased automation within e-commerce as a further investment driver, saying that older industrial and logistics facilities were increasingly requiring upgrades, creating opportunities for investors.

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“Because of automation, robotics and artificial intelligence, warehouses have to be more modern,” she told AsianInvestor. “But in Asia, a lot of warehouses aren’t modern. If firms don’t modernise their operations, they won’t be able to compete with their peers, and that’s creating quite a bit of demand.”

Regina Lim
M&G Real Estate

RELOCATION, RELOCATION, RELOCATION

Lim said “nearshoring” and “reshoring” were additional drivers of investment in industrial and logistics real estate.

Both Lim and Tan cited Japan and South Korea as examples of how the relocation of manufacturing had boosted demand for industrial and logistics properties.

Lim said: “The pandemic made us realise we shouldn’t be sourcing everything from one country, and Japan and South Korea are realising that companies are saying, ‘I want to put my manufacturing plants in your country because you have really good components suppliers, really good research and development, and your workers are very efficient’. We’re seeing a resurgence of manufacturing in these countries.”

Lim also noted that the Japanese government’s provision of investment incentives represented an opportunity for investors.

Gavin Bishop
Colliers

Gavin Bishop, managing director of industrial and head of industrial capital markets for Australia at Colliers, noted similar measures in Australia.

“The government is providing incentives to expand the manufacturing footprint and develop new light-assembly manufacturing facilities, and incentivising existing businesses,” he told AsianInvestor.

“So, we're seeing an increase in leasing demand from local manufacturing companies.”

Bishop’s colleague Michael Bowens, head of industrial for Asia at Colliers said reshoring and nearshoring were to some extent benefiting other Asian countries.

“Is reshoring from China to Vietnam happening at the unprecedented rate that maybe Vietnam hoped it would?” he asked. “No, not yet but certainly there has been increased interest and investment. Thailand, Indonesia Malaysia and India are also benefitting.”

INDUSTRY INSTITUTIONALISATION

Michael Bowens
Colliers

Cuong Nguyen, head of Asia-Pacific investment research at PGIM Real Estate, told AsianInvestor that rents in the industrial and logistics segment had remained buoyant.

Cuong Nguyen
PGIM Real Estate

“The past couple of years have seen rental growth for logistics growing solidly, particularly in markets with tight supply, such as Australia and Singapore, and we continue to believe in the structural drivers for logistics demand in the long term,” he said.

Bishop said he anticipated solid growth in industrial and logistics real estate allocations going forward.

“Historically, industrial and logistics was a very small component within overall portfolios, which had a larger weighting to office and retail,” he said.

“But as the industrial and logistics markets have become a more institutional, accepted asset class, there's now significant demand from both domestic and global investors as they look to reweight to the sector. We anticipate significant growth over the next five years."

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“As the market continues to evolve, larger tracts of land will get built out, and there’ll be further warehouse consolidation as companies look to improve supply chain efficiencies. That's what a lot of institutional investors are wanting to get access to.”