After a scorching 2020 that saw investment reach a record $13.5 billion in Asia Pacific, the logistics sector faces yield compression as the asset class continues to grow in popularity with institutional investors, a panel of four experts told MTD TV on Tuesday.
In the latest instalment of Asia Logistics Investment Forum 2021, Mingtiandi founder Michael Cole moderated a freewheeling discussion of strategies for core investment in warehouse assets with Lance Li, chief executive of Vietnam’s BW Industrial; Stuart Crow, chief executive for APAC capital markets at JLL; Suchad Chiaranussati, chairman and founder of SC Capital Partners; and Rushabh Desai, chief executive for Asia Pacific at Allianz Real Estate.
The hour-long session, which was sponsored by Yardi, saw the participants pronounce logistics as ready to assume equal status with core office investments in Asia Pacific, and also touched on topics including the durability of an e-commerce-driven boom and the diversification of supply chains to the benefit of fast-growing Southeast Asian markets like Vietnam.
“Logistics investment is still very active in Asia Pacific,” said Li, whose firm specialises in ready-built factories and warehouses. “Among the Southeast Asian countries, Vietnam is one of the key frontiers of such growth, and we have witnessed increasing investment, or commitment, in Vietnam.”
New Links in the Chain
Aside from demographic and e-commerce drivers, developing logistics markets like Vietnam have profited as multinationals seek to avoid overreliance on China’s supply chain networks. Li even sees similarities between Vietnam and its giant neighbour, such as large populations and political stability.
“Looking at China and Vietnam, it depends on different kinds of perspectives,” he said. “Some people say (Vietnam is) 15 years behind, some people say 10 years behind, some people say five years behind. But if you look at the mindset, probably they are quite close.”
Ready-built factories make up 75 percent of BW’s portfolio of 26 projects in Vietnam, but Li expects ready-built warehouses to gradually increase their share to 50 percent as local manufacturing and e-commerce fuel demand.
JLL’s Crow, who leads a 550-strong APAC team at the agency, agreed that Vietnam and also Indonesia are poised to become logistics hotspots as their large economies mimic China’s model of placing warehouses nearer to the end-user.
“I think that’s probably one of the biggest changes we’ll see in the next five years, is that we’ll see a lot more investment into Southeast Asia,” he said, identifying cold storage as a particular area of interest as food safety weighs more heavily.
Turning attention to investment income, Allianz Real Estate’s Desai observed that the arbitrage between office and logistics is decreasing as logistics becomes a more mainstream real estate sector and yields succumb to gravity.
“Given the increase in investment demand for logistics, the pricing has moved quite a bit across the world in the last 12 months, and it continues to move,” he said. “The cap rates continue to compress, so I think at some point you’ve got to also look at risk and return. And while you would like to do a lot more core logistics, we would sort of start being cautious.”
Desai, whose Europe-based group has $9 billion in exposure to Asia real estate with roughly a third of that amount in logistics, seconded Crow’s bullish view of Vietnam and Indonesia and added his own dark horse to the mix: Thailand.
That drew an amused response from Thai native Suchad, whose Singapore-based SC Capital Partners has $7.4 billion in assets under management.
“I always think that Thailand kind of never punched above its weight in terms of logistics, considering its strategic location within ASEAN,” he said.
As an alternative, Suchad highlighted build-to-core logistics in South Korea, saying the segment remains an “extremely profitable” business.
You can watch the full discussion above.
Development Strategies Up Next
The Asia Logistics Investment Forum 2021 continues on 13 July with a panel on development strategies featuring BW Industrial director Michael Chan, JLL capital markets director Priyank Shah, Logos head of strategic customers Peter Garrison, and Jai Mirpuri of ESR.
The final session on 21 July will focus on logistics and e-commerce in mainland China, with appearances by Victor Mok, chairman and chief executive of the asset management platform for GLP China, Cushman & Wakefield head of investors services for Asia Pacific Dennis Yeo, and ESR China chief operating officer Zhou Bo.
The month of August brings Mingtiandi’s Sustainable Real Estate Forum 2021, presenting sessions on the advantages of creating sustainable offices and facilities, as well as how green financing is rewarding developers and asset managers that prioritise green objectives.