PGIM Real Estate has acquired a six-storey industrial building in Singapore’s Paya Lebar region for S$75 million ($55 million) the global real estate manager announced on 11 September, underlining the growing popularity of industrial assets with some of the world’s largest investment managers.
The fund management affiliate of US financial giant Prudential positioned its purchase of the nearly 212,000-square foot (19,690 square metre) Luxasia Building as providing it with a warehouse property which fits into the mainstream of its investments in the region.
“Modern logistics assets are a major component of our core strategy within Asia Pacific,” said Benett Theseira, PGIM Real Estate’s head of Asia Pacific, whose team is following a trend that has seen global investors increasingly turn to industrial assets in core APAC locations as shifts in retail and supply chains emphasise the value of distribution facilities.
Paya Lebar on the Rise
The real estate fund management unit of Prudential Group originally agreed to acquire the property in Jurong Town Corporation’s 15-hectare (37-acre) Paya Lebar iPark industrial development in December 2019, however, local approval requirements delayed the official close of the transaction until May of this year.
Despite the advent of the COVID-19 crisis, PGIM followed through on the original terms of the deal which add the industrial asset to its core portfolio at the equivalent of S$354 per square foot. Real estate consultancy JLL represented Luxasia in the sale, according to market sources.
In explaining its selection of the Luxasia Building, PGIM pointed to the asset’s integration of industrial space with office facilities that reduces tenant transport and logistics costs, as well as to its location in the Paya Lebar area, a district in east-central Singapore earmarked by the Urban Redevelopment Authority in its 2014 master plan as one of the city’s five growth areas.
The asset, which is located near the Tai Seng MRT station, is zoned as a B1 industrial property which allows for use for a variety of light industrial and commercial purposes, which some analysts saw as adding to the asset’s value.
“Investors interested in industrial property in Singapore are not just looking at logistics assets, but also at B1 zoned high tech industrial facilities,” said Rimon Ambarchi, head of industrial and logistics for Singapore and Southeast Asia at CBRE. “These buildings, in fact have some of the most resilient rents recorded over the past 10 years compared to other asset classes.”
The address is currently fully occupied with cosmetics wholesaler Coty Prestige Southeast Asia occupying part of the building alongside Luxasia.
Monetising Assets Outside the Banks
Luxasia originally developed the property for its own use, and as part of the transaction has entered into a long-term leaseback with PGIM for a significant portion of the property, sources with knowledge of the transaction told Mingtiandi.
The sale-and-leaseback arrangement is the latest example of a deal structure more common in western markets which is gaining popularity with APAC asset owners as the COVID-19 crisis puts a premium on liquidity.
In April of this year, Australia’s Toll Group partnered with logistics developer Logos Group in a $150 million deal to redevelop an Auckland, New Zealand site belonging to the shipping firm under a sale and leaseback arrangement.
That Aussie deal was followed two months later with grocery giant Aldi selling off a set of four Sydney area warehouses to fund manager Charter Hall for A$648 million, also under a sale and leaseback arrangement.
Industrial Life Buoy
Although Singapore is entering a services-led recession, the warehouse market was underpinned during the second quarter by demand for storage aimed at reducing further COVID-related supply disruptions, particularly by the government stockpiling essential medical supplies and foodstuffs, according to research by Cushman & Wakefield.
In explaining PGIM’s Theseira pointed to macro-level shifts which are expected to promote growth in demand for industrial assets, even under challenging conditions. “Ongoing structural trends, such as the growth of e-commerce are providing long term support to the sector, and in the current environment since the outbreak of COVID-19, logistics has been one of the most defensive sectors for income and capital values,” Theseira said.
Other fund managers are pursuing similar investment approaches in Singapore with SGX-listed property trust AIMS APAC REIT agreeing last month to buy a 733,991-square foot warehouse in the city’s Jurong district for S$129.6 million, noting that the acquisition would build long-term value for its unitholders.
In May, German investment manager DWS (previously Deutsche Asset Management) waded into Singapore’s logistics sector with the city’s first major acquisition of the year when it bought a 403,000-square foot warehouse in Jurong for S$75 million.
Expanding in Core APAC Markets
PGIM is investing in the Luxasia building through its core Asia Pacific strategy, which reached a first close of $447 million in September of last year.
With over $120 billion in net assets under management as of June this year, the company pointed to Singapore logistics assets as within the mainstream of its investment thesis.
“In addition to Singapore’s retail and office sectors, we have also been active in the industrial space and have invested in a number of logistics assets prior to Luxasia Building for other strategies and mandates,” continued Theseira. “We continue to source for acquisitions in Singapore and are currently evaluating a number of potential opportunities.”
In 2019, PGIM picked up the 108,000-square-foot Riverside Shinagawa Konan, a fully occupied office tower near Tokyo. That Japan deal was preceded in 2018 by the firm’s acquisition of the 362,000-square foot twin-tower Singapore office development 78 Shenton Way for SG$680 million.
Note: This story has been updated to clarify that Paya Lebar iPark is a Jurong Town Corporation project. An earlier version linked the project to Mapletree.