Warehouse landlords rank among biggest gainers of growing e-commerce in Asean

WAREHOUSE landlords are expected to be the biggest gainers as growing Sino-US tensions fuel a strategic shift in manufacturing and logistics value chains to South-east Asia and more companies adopt a "China + 1" strategy.

On Monday, a DBS Group Research report named Mapletree Logistics Trust (MLT), Westports, ESR Cayman, Thailand's industrial estate developer Amata, as well as Thailand's logistics Reits (real estate investment trusts), Hemaraj Reit and WHA Premium Reit, as "gems" to buy within the Asean logistics industry.

The analysts that penned the report believe that Asean offers the right recipe for an "explosive" growth in e-commerce, with pivots in manufacturing value chains benefiting Vietnam, Indonesia and Thailand, while Singapore and Malaysia remain the region's key logistics hubs.

Growth drivers for Asean's logistics sector include the region's rising affluence, sizeable young population, as well as high digital connectivity and mobile penetration, which make it one of the most attractive consumer markets.

A study by Google and Temasek expects the e-commerce market in South-east Asia to grow at a compound annual growth rate (CAGR) of 34 per cent to reach US$102 billion by 2025, from just S$5.5 billion in 2015. Indonesia is expected to lead this growth with a 41 per cent CAGR from 2015 to 2025 as it widens its scope to second-tier cities and rural areas which offer great growth potential.

This trend is expected to be accelerated after Covid-19 led more businesses to jump onto the e-commerce bandwagon to remain within the retail ecosystem, and social distancing measures and lockdowns continue to force businesses to innovate.

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"Consumers had the best opportunity to try out the best of what e-commerce can offer during the pandemic and will form new habits... Consumers are also forming new online-only buying habits to avoid crowds, although that will likely taper off. Doorstep delivery has been convenient, and we expect the trend to continue post Covid-19," they said.

As consumption increases, the demand for modern supply chain and logistics space is also growing exponentially, which is why many of the anticipated beneficiaries of growing e-commerce are real estate owners of logistics facilities with modern specifications.

Such specifications include ramps for multi-storey warehouses, large floor plates with higher load capacity, high ceilings, as well as large spaces to accomodate higher inventory levels in order to achieve shorter delivery times.

For this reason, MLT stands to gain as it owns a portfolio of quality logistics real estate in eight countries, with significant exposure to Asean as Singapore, Malaysia and Vietnam make up 37 per cent of its portfolio.

Thai developer Amata is also another prime beneficiary of the relocation of factories out of China into South-east Asia, thanks to its presence in Thailand, Vietnam and Myanmar and huge 12,720 rai (20.4 million square metres) of industrial land in the Eastern Economic Corridor of Thailand.

The narrative is similar for ESR Cayman, which owns and runs 57 industrial and logistics properties in Singapore, held through ESR-Reit, which is in the middle of an ongoing proposed merger with Sabana Reit.

Hemaraj Reit's tenant base has seen a surge in Chinese tenants after US-China trade tensions worsened. Its share of Chinese tenants has grown to 27 per cent in Q1 2020, from 11 per cent in Q1 2019 as manufacturers in China relocated into Thailand.

WHA Premium Reit, the largest logistics warehouse Reit in Thailand, is likewise expected to ride the trend of manufacturers in China relocating to Thailand, and reportedly escaped "almost unscathed" by Covid-19, with its occupancy rate up slightly to 91 per cent at the end of Q2 2020.

Port services provider, Westports, the only non-property player listed by DBS, is also expected to benefit as it has significant exposure to the Asean market, with three-fifths of its total transhipment volumes coming from Intra-Asia. Its container segment is also its main earnings driver, and contributes 88 per cent to revenue.