Asian warehouse space attracts international fund interest

Warehouse space in China and Japan continues to appeal to institutional investors despite concerns over the impact of China's slowing economic growth.

Leading the investment charge in the sector are such powerful institutions as the Canadian Pension Plan Investment Board (CPPIB), Dutch pension fund Stichting Pensioenfunds APG, and Global Logistics Properties, the Singapore-based warehouse operator backed by Singapore sovereign wealth fund GIC Private.

Asia has some of the most expensive warehouse property in the world; Hong Kong (at US$21.80 per square foot per year), Singapore (US$21), and Tokyo (US$20.60), rank behind only London Heathrow (US$22), in terms of cost, according to Colliers International. Mainland China is substantially cheaper, with Beijing rents at just US$6 per square foot per year.

The lower cost of land, though, compared to those other cities leads to a high capitalisation rate, a measure of the profitability of real estate; it is 6.9 per cent in the Chinese capital. Tokyo comes close, with a cap rate of 6.2 per cent.

That explains why investors currently favour those markets over Hong Kong, where the very high development cost for warehouses leads to a cap rate of only 4.1 per cent. Singapore's cap rate is similar, at 4.5 per cent.

Both Hong Kong and Singapore have also expanded property-purchase curbs to include warehouse space.