With e-commerce booming, investors should make space for Asia-Pacific’s biggest warehouse landlord

ESR Cayman, expected to be Hong Kong’s largest initial public offering so far this year, will benefit from high prime logistics yields in Asia-Pacific, growing disposable incomes in China and India, and government support for the logistics industry

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An employee works at a JD.com logistics centre in Langfang, in China’s Hebei province, in November 2015. ESR Cayman is one of JD’s major landlords in the Asia-Pacific region. Photo: Reuters

Published: 2:00pm, 10 Jun 2019Updated: 10:36pm, 10 Jun 2019

This is hardly a propitious time for what is expected to be the largest initial public offering on Hong Kong’s stock exchange so far this year, and the biggest real estate IPO since the debut of Dalian Wanda, the mainland developer, in December 2014. The Hang Seng Index is down more than 10 per cent since May 3 as part of a broad-based sell-off in equity markets, with traders fretting about the economic impact of the renewed escalation in the US-China trade war.

Yet the prospectus for ESR Cayman – the world’s largest Asia-focused logistics property developer, which is seeking to raise HK$9.76 billion (US$1.24 billion) in a sale of shares expected to be priced on June 12 and begin trading on June 20 – makes a compelling case for investing in industrial real estate in a region benefiting from strong growth, a rising middle class and a booming e-commerce market.

ESR was formed in 2016 from the merger of e-Shang and The Redwood Group – the former was a mainland logistics developer established by Chinese property entrepreneurs and US private equity fund Warburg Pincus, while the latter was a logistics real estate firm focused on Japan and China.

It builds and manages modern logistics facilities in China, Japan, South Korea, Singapore, Australia and India. Its platform is the biggest in the region in terms of gross floor area, the value of the assets under management and the pipeline under development.

This gives potential investors exposure to a diverse group of mature and emerging industrial property markets in countries that account for 90 per cent of the Asia-Pacific region’s gross domestic product. What is more, it allows investors to tap into a thriving e-commerce logistics market, which accounted for 43 per cent of the global market last year, almost one-third larger than North America’s share and nearly double that of Europe, according to ESR’s prospectus.

Demand for e-commerce logistics real estate, such as last-mile fulfilment facilities, is being driven by China, the world’s largest e-commerce market, where online shopping accounts for nearly a third of total retail sales. Another key driver of leasing activity is the outsourcing of logistics operations by consumer goods manufacturers to third-party logistics providers, which design and manage supply chains.

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