Pan-Asian logistics real estate platform ESR has leased an entire four-storey warehouse project near Tokyo to a logistics services division of Japanese industrial group Daiwa just eight months after renting out half of another facility near the Japanese capital to Amazon.
ESR found a tenant for the 78,119 square metre (840,866 square foot) complex just six months after kicking off construction in February, with the company planning to complete the project in April 2021.
The developer and fund manager will deploy capital from its Japan Logistics Fund II, which raised approximately $1.2 billion when it closed in May 2018, to finance the project five kilometres from the Kawasaki Port container terminal in Kawasaki City.
Meeting Tenant Demand Around Tokyo
“In a largely owner-occupied market like Tokyo Bay, there is a limited supply of institutional-grade facilities in the rental market to support businesses that are in search of larger space and high specifications,” ESR co-CEO and co-founder Stuart Gibson said in a statement.
Located 15 kilometres from Tokyo’s city centre, the site is within five kilometres of Tokyo’s Haneda International Airport, and 18 kilometres away from the port of Yokohama.
The agreement announced today represents the second time that the Hong Kong-listed warehouse specialist has leased an entire project to Daiwa after the Japanese giant signed up in 2016 to lease all of the space in ESR’s Chibakita Distribution Centre – a four-storey facility near Tokyo covering 39,600 square metres of gross floor area.
In January ESR had cashed in on-demand for logistics space near Japan’s most populous city by leasing 72,392 square metres in its Kuki Distribution Centre — nearly half of the Saitama prefecture project — to Amazon.
By last month the Warburg Pincus-backed firm had further monetised that customer relationship by selling that 151,500 square metre project into a joint with AXA Investment Managers for approximately JPY 39 billion.
ESR Gets Big in Japan
The group’s latest lease with Daiwa comes only months after ESR announced the completion of its Amagasaki Distribution Centre in Osaka, opening Asia Pacific’s largest logistics real estate project some three years after acquiring the site in 2017.
“The strength of our leading development pipeline and asset management skills will continue to position ESR to successfully capitalise on the growth opportunities and further cement our leading position in the Japanese logistics property market,” Gibson noted.
The group has had a presence in Japan since the Redwood Group, which later became part of ESR, was founded in 2006, with the Kawasaki warehouse marking the 28th addition to ESR’s portfolio in the country.
With ESR’s Japan assets under management now totalling $7.7 billion, or 36 percent of the group’s total, the island nation hosts the largest concentration of properties across the developer and fund manager’s six-country footprint, according to a 2019 financial report.
Logistics Appetites Grow
While the coronavirus pandemic has wreaked havoc on the retail and hotel real estate markets, the pandemic has helped drive fresh demand for logistics assets in Japan and across Asia Pacific.
In Tokyo, ESR’s co-CEO has put the relative stability of the sector down to resilient commercial requirements. “Multiple drivers – including e-commerce growth and supply chain optimisation – continue to accelerate the demand for modern, large scale logistics facilities in the Greater Tokyo Area,” Gibson said.
This durable demand is also attributable to grocery and pharmaceutical companies seeking cold and mixed storage space, according to CBRE’s mid-year APAC report. In Japan, the real estate consultancy group estimates that rent growth in Tokyo’s property logistics sector will hit three percent by year’s end, while the Greater Osaka region will see a roughly five percent increase.
Speaking at a logistics forum hosted by Mingtiandi in July Gibson pointed to the upswing in warehouse demand as a regional phenomenon that has been building in recent years, driven in large part by the growth of online shopping.
“The importance of e-commerce and logistics have really become more apparent but it’s been an ongoing trend for sometime now,” Gibson said at the online event. “We have a whole generation of customers who have been exposed to e-commerce. That’s just going to grow.”
In a report issued this month real estate data provider Real Capital Analytics found that the value of logistics facilities traded in Asia Pacific during the second quarter of 2020 reached $3.7 billion, outstripping trades of both retail and hotel assets on a quarterly basis for only the second time since 2007.
Across the Asia Pacific region as a whole, logistics REITS have emerged as the most resilient amid market sell-offs while hotel and retail REITS have been hardest hit, according to a July report by Deutsche Bank asset management affiliate DWS.