Asia's growing spending power, smartphone use and penchant for e-commerce have been like rocket fuel for some industries like logistics and will continue to be for the foreseeable future in a protracted boon for the property sector.
That’s the view of Jimmy Phua, head of real estate investments for Asia at the $277 billion Canada Pension Plan Investment Board (CPPIB).
And in the hunt for modern warehouses and distribution centres to develop and rent out to logistics operators the fund has increasingly been looking to Southeast Asia, he said during a panel discussion at the HKVCA Asia Private Equity Forum on Wednesday.
“In the past few years, we have been spending more time [looking at logistics investments] in Southeast Asia, including Singapore, Malaysia and Indonesia,” he said.
Phua noted that while investing in the sector has been fashionable for some time now, it continues to merit considerable investor attention because of the region's attractive demographics and the logistics-related infrastructure still sorely needed in many of its markets.
Adding to the allure is that many of the large global logistics players including Australia’s Goodman Group and Singapore’s Global Logistics Properties (GLP) are not yet operating in some of these markets, making CPPIB an early entrant, he said.
That could provide an edge over the long term, which is why the pension fund has spent time cultivating local partnerships and hopes to do continue doing more in that area, he added.
Of the $72.5 billion invested in Asia at the end of March 2018, CPPIB has about $15 billion invested in real estate markets stretching from Japan to Australia.
OUTSIDE SOUTHEAST ASIA
Aside from in Southeast Asia, some logistics markets in northern Asia are also a draw. In Korea, for instance, the Canadian pension fund's presence "has been growing", said Phua.
“It’s not an easy market but we have been growing our logistics portfolio,” he said, without providing details of how much CPPIB has invested in any specific Asian market.
“At the moment there aren’t any big-scale players in the logistics space and we think we could become the largest [logistics] player in Korea soon.”
Another market with pockets of opportunities in logistics is Japan, according to Phua. “We have a huge portfolio of modern logistics in Japan with GLP. This year we will invest [more] millions into the logistics space. “
in December, CPPIB became the anchor investor in GLP’s largest-ever fund targeting Japan’s logistics properties.
And, of course, there’s China too, where the fund has linked up with Goodman to invest in logistics properties since 2009. “We started when almost no one was in the logistics space, with $140 million and today we have $4 billion to $5 billion with the same partner in China,” Phua said.
The fundamentals of the Chinese logistics sector remain compelling, driven by domestic consumption growth in China, including e-commerce, which underpins the strong demand for prime logistics facilities, Phua said in a statement in August, during a previous round of investment.
CPPIB, of course, is not the only institutional player scouring the logistics space.
In November, Germany’s Allianz and ESR Group, an Asian logistics real estate developer backed by private equity firm Warburg Pincus, announced the setting up of a $1 billion investment platform targeting India’s logistics sector.
Singapore’s sovereign wealth fund, GIC, has also said that it will establish a $1.4 billion unlisted trust with real estate investment trust Dexus to invest in logistics properties in Australia.
Given its intent to partner up with specialist entities, Phua said the pension fund spent a considerable amount of time discussing partners while assessing the fund’s property portfolio for vulnerabilities.
“We are long-term investors, not market timers. Our portfolio has to be able to withstand [market] cycles,” he said.
And while it has been looking at opportunities in logistics, CPPIB has also been disposing of assets in other markets and sectors. For instance, the fund has recently been selling assets in Australia, where it has accumulated close to $6 billion in property investments over the past 10 years, Phua said.
“This is a good way for us to take some money off the table and deploy somewhere else,” he noted.
Globally, Phua noted that there is less of a wall of capital out there than there used to be. “However, there is still more capital than good projects in place,” he said.