Indeed, one of the most noteworthy aspects of the swift recovery in transactions is the sharp increase in the size of deals. According to CBRE, investments worth over US$1 billion accounted for one quarter of volumes last quarter, with large portfolio transactions increasingly prevalent.

In a sign of the extent to which the pandemic has catalysed a rebalancing of investors’ real estate portfolios, logistics and industrial deals – which have historically accounted for close to 10 per cent of transaction volumes in Asia – constituted 30 per cent of investment activity last quarter, the same share as the office and retail sectors, data from JLL shows.

Convulsed by changes in the way people live, work and play, the commercial property industry is undergoing a structural shift in asset allocation that is likely to have far-reaching consequences for investment and occupier markets the world over.

Regina Lim, head of Asian capital markets research at JLL, said feedback from clients indicate investors in Asia plan to allocate around a third of their portfolios to defensive sectors, such as logistics, data centres and rental housing. Due to the dearth of opportunities in the multifamily sector, the bulk of the capital will target warehouses and data centres.

Yet, while portfolio diversification in commercial property is a key trend across the industry, it is much less advanced in Asia. Unlike in North America, where traditional types of real estate now account for less than 50 per cent of investors’ portfolios, office and retail assets in Asia still account for two-thirds of investors’ exposure.

There is therefore considerable scope for more capital to be allocated to sectors that are proving the most resilient, and have the greatest potential for growth, in the post-pandemic world. While developers and investors were betting big on logistics before the virus struck, the size of these wagers has increased dramatically over the past 18 months.

In the strongest sign yet of the appeal of Asia’s logistics sector – and the opportunity for leading property groups to capitalise on the rebalancing of portfolios – ESR, the largest logistics property platform in the region, announced last week that it is buying ARA Asset Management, Asia’s biggest real asset fund manager, for US$5.2 billion.

The merger – which will create the world’s third-largest listed real estate asset manager – allows ESR to cement its dominance of Asia’s logistics property market through the acquisition of Logos, ARA’s logistics development arm that has become a leading player across the region and, like ESR, is pushing into the booming data centre market.

Asia’s red-hot logistics property market sets high entry bar for investors

Another reason for the deal is the opportunity to tap into the financialisation of Asian real estate. ARA’s broad range of real estate investment trusts (Reits) and private funds will allow the new group to help investors divest office and retail assets and redeploy the capital into logistics and data centres through ESR and Logos.

Jeffrey Perlman, ESR’s chairman, said the merged company would be “a double-headed dragon of New Economy growth” in Asian real estate, which would benefit from the institutionalisation and democratisation of the region’s property market.

Yet, will the deployment and reallocation of capital to logistics and data centres continue apace once the pandemic recedes and economic conditions normalise?

From a sentiment standpoint, there has already been a shift away from logistics as economies reopen. While an S&P 500 index of office-focused Reits has surged 44 per cent since the vaccine breakthrough in November last year, a gauge of logistics-focused Reits is up by a less spectacular 22 per cent.

In Asia, offices proved more resilient during the pandemic and are likely to maintain their high share in investors’ portfolios. Moreover, the weight of capital targeting logistics assets is pushing down rental yields sharply, especially in Sydney and Seoul where they are now just above, or even slightly below, their office equivalents.

Given that offices enjoy a more stable outlook in Asia, and are a much more liquid asset class, investors may feel warehouses are becoming too expensive vis-à-vis offices.

Still, logistics property is at a relatively early stage of development in Asia, and is being driven by the rapid growth of e-commerce, the most important secular trend in the global economy. At the very least, investors need to rejig their portfolios to gain more exposure to technology-enabled real estate.

One of the cardinal rules of investing is the need to diversify. In Asian commercial property, logistics remains significantly under-owned. This alone suggests the surge in investment in the sector has a lot further to run.

Nicholas Spiro is a partner at Lauressa Advisory