Why Asia’s booming logistics property market will only benefit select investors
- The sector’s stellar performance compared with other commercial real estate assets is attracting a flood of capital seeking profit, pushing prices up and rental yield down
- The real challenge is the scarcity of institutional-grade assets, which makes it hard for investors to achieve scale at pace. Investors with deep pockets have the advantage
Preliminary figures published by real estate consultancy RCA on January 26 showed that investment in the region’s logistics sector reached US$13.5 billion in 2020, an all-time high. South Korea and Australia enjoyed record levels of investment, while China and Japan had their second-most-active years.
Given that Asia’s commercial property market as a whole suffered a 20 per cent year-on-year decline in transaction volumes last year, separate data from CBRE shows, and that the region’s logistics markets are much less liquid than those in the US and Europe, the strong performance of the sector is remarkable.
It is underpinned, moreover, by robust leasing activity and continued rental growth in most markets – a rarity in other commercial property sectors. In the final quarter of last year, net absorption of warehouse space across the region rose to its second-highest quarterly level on record, according to CBRE, with landlords in Tokyo and Beijing even raising their rents.
Investors are drawn to the sector’s resilience. Covid-19 has turbocharged pre-pandemic trends in Asian and global real estate, notably urbanisation, the rise of the middle class, the expansion of online grocery retail and the integration of technology into warehousing.
01:37
E-commerce companies in China offer temporary jobs to thousands amid coronavirus outbreak
High-quality logistics assets have become more critical to many companies’ operations, accentuating the sector’s defensive attributes. The virus has underscored the importance of efficient supply chains – particularly the need to diversify production and sourcing – and generated new sources of leasing demand.