NZ Super bullish on Asian logistics

The New Zealand Superannuation Fund (NZ Super), a sovereign wealth fund (SWF) with NZ$60 billion ($40.5 billion) in assets under management (AUM), is eying property deals in a number of Asian markets, a spokesman for the fund told AsianInvestor.

“We are bullish on logistics and specifically we like the market in Asia, which is fundamentally undersupplied with grade-A logistics units when compared to the US,” said Toby Selman, who is in charge of property investment strategy at the fund.

NZ Super invested $150m in the CBRE Asia Value Partners VI fund, a logistics-focused fund, which closed in October 2021 with $1.74bn raised from 13 institutional investors from EMEA, the Americas and Asia Pacific

While the fund has not done any property deals in Asia or elsewhere this year, Selman said that it plans to continue its logistics development programme in the region. He pointed to Asia’s favourable demographics and market dynamics. The fund favours developed Asia in part because of these markets’ greater liquidity, and has investments in Japan, Korea, and Australia.

LOGISTICS ASSETS

Capital values for Asian logistics assets increased by 6.8% last year, according to CBRE’s capital value index.

But CBRE’s 2023 Asia Pacific Real Estate Market Outlook, released on February 8, warned of falling demand for industrial and logistics assets in the region this year. It predicted that across mature Asian markets, excluding the prime market in Singapore, rental growth would slow to less than 3%, down from a decade-high level of 7.9% in 2022.

Selman said the fund was looking closely at several markets, but was reviewing future projects in South Korea. “The asset pricing is a little less attractive [there] at the moment, so we are more focused in other markets,” he said.

“In Korea, the excess supply will hit to the market in 2023 and 2024 – as a result, rental growth will be muted,” said Henry Chin, global head of investor thought leadership, Asia Pacific for CBRE.

OPEN TO CHINA

Selman said that, while liquidity issues remained an obstacle in China, the fund remained open to opportunities there.

“While the movement of people has resumed in and out of China, the movement of capital has not yet returned to what it was,” he said.

“Within China, liquidity has fallen: there are fewer buyers, and this is a factor to consider if you are going to hold assets. But we’re not against [making] investments [there],” he added.

Chin pointed to particular headwinds in China preventing the development of the sector. “Occupiers in mainland China are set to remain conservative until the economic recovery becomes more prominent, likely in mid-2023. Rental growth will be in the low single-digit range for Tier-1 cities,” he said.

Selman said the fund had spent time in recent months researching opportunities in Australia.

“It is still relatively expensive and [the central bank] hasn’t moved interest rates as much as New Zealand or the US,” he said. Currently, Australia’s interest rate is 3.6%, compared with 4.75% in New Zealand and 4.75% in the US. 

GREENING LOGISTICS 

Selman emphasised the efforts the fund was making to reduce the carbon footprint of its global logistics portfolio. He noted the suitability of warehouses, which have larger roof areas than other property types relative to their total size, for solar panels and pointed to the fund’s on-going roll out of solar panels across facilities in Asia and the US.

“We are driving for our buildings to be carbon neutral, which also makes them more attractive to tenants, and so we are continuing the roll out in Asia, as in the US, including [in projects] with partners,” he said, although he declined to share targets for solar coverage on Asian logistics facilities or the number that were currently fitted with solar panels.

Selman said the solar roll out played a valuable role in keeping operating costs low at a time of sharply increasing energy costs, thereby providing a competitive offering to tenants and supporting long-term asset value. 

The CBRE report detailed slowing demand by major technology companies in the region to justify its predictions of slowing rental growth of industrial and logistics assets this year.

“Slowing growth momentum, coupled with escalating business costs, will compel major e-commerce companies to review operations and scale back real estate expansion. E-commerce sales growth is already normalising from pandemic-era highs as consumers return to physical retail,” said the report.

CBRE forecasts logistics yields in the region this year to average 5.49%, marginally up from 5.24% in 2022.

It predicted that new logistics supply across the regions would rise 60% in 2023, to 200 million sq ft, due to the fact that projects had been delayed from completion last year by supply chain difficulties.