ESR is investing JPY 27 billion ($250 million) to develop the largest distribution centre in Greater Nagoya, as the Hong Kong-listed logistics specialist pushes forward with its expansion in Japan.
Developing the Yatomi Kisosaki Distribution Centre will add a further 153,092 square metres (1.6 million square feet) of gross floor area to ESR’s global portfolio, while bringing the number of Japanese facilities the warehouse giant owns, either directly or through funds it manages, to 27.
The announcement comes nine months after Warburg Pincus-backed ESR, which has $20.2 billion in assets under management globally, announced it had closed on JPY 70 billion in funding for its ESR Japan Logistics Fund III (RJLF3).
Developing a Landmark Facility
“ESR Yatomi Kisosaki DC is set to become a landmark project in Greater Nagoya, reflecting ESR’s commitment to providing best-in-class properties in support of businesses to grow and optimise their operations,” said Stuart Gibson, ESR’s co-founder and co-CEO.
Located in Japan’s third-largest metropolitan area, the planned four-storey, double-ramped distribution centre is roughly 380 kilometres west of Tokyo and 30 kilometres from Nagoya city centre.
The company said in a statement that the facility will allow “prime access to Nagoya’s major business and shopping areas, the Nagoya Port as well as the Isewangan Expressway, which connects with Osaka and Tokyo”.
Developed on a 79,095 square metre plot, which can be accessed via the Mie and Aichi Prefectural Roads in Kisosaki, construction is due to start in December 2020 with completion scheduled for sixteen months later.
Expanding in Japan’s Fourth-Largest City
Having already established the 35,227 square metre Nagoyaminami Distribution Centre and three more facilities in the Greater Nagoya area, Gibson highlighted the strategic importance of the market in Japan’s Chibu region , including its production of more than a quarter of Japan’s manufacturing.
“The development of ESR Yatomi Kisosaki DC will further consolidate our strong position in Greater Nagoya, complementing our network of four other state-of-the-art facilities in the area, including ESR Redwood Yatomi Distribution Centre which is located within three kilometres to the northeast,” Gibson said.
As of 30 June 2019, ESR had 1.2 million square metres of completed properties in Japan in terms of gross floor area and 1.6 million square metres under construction. This latest investment comes just over four years after ESR was created by merging Shanghai-based e-Shang and Japan’s Redwood Group.
Building Up a Japanese Portfolio
Having built up assets under management worth $7.6 billion in Japan, ESR has built an arsenal of funds and joint ventures with institutional partners to fuel further expansion in the country.
Four months before the close of ESR Japan Logistics Fund III, which has a potential investment capacity of up to JPY 530 billion, ESR announced that it had formed a new joint venture with France’s AXA Investment Managers and an unnamed sovereign wealth fund.
That JV with AXA is aimed at acquiring core logistics properties in Japan, starting with a $1 billion purchase of six of ESR’s existing assets in Tokyo and Osaka.
Falling Vacancy Rates
ESR is continuing to ramp up its portfolio in Japan as the rise of e-commerce boosts rents rise and absorbs available space across Japan’s logistics real estate sector.
CBRE said in a report released just two weeks ago that the vacancy rate for warehouse space in Greater Tokyo had tightened to less than two percent in the fourth quarter of last year, while rents rose by 1.4 percent compared to the previous three months, to reach JPY 4,290 per tsubo (3.3 square metres).
For Greater Nagoya, vacancy fell by 2.5 percentage points during the fourth quarter, compared to the previous three months, falling to 9.6 percent at the end of 2019, while rents edged upwards by 0.6 percent to JPY 3,580 per tsubo.