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Investors drawn to S-E Asia's warehouses in wake of pandemic

Firms seek new avenues when factories shut in China, accelerating manufacturing's shift to regional markets.

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German logistics firm DB Schenker's investment of US$163 million in its new 550,000 sq ft warehouse at Singapore's Airport Logistics Park is an example of a recent high-profile deal.

RECENT headlines about Singapore-headquartered logistics giant GLP making its first foray into South-east Asia through a US$1.6 billion joint venture in Vietnam have highlighted the growing significance of the region as a logistics hub.

Since the pandemic hit, supply chains and production have been impacted worldwide. Large companies, from Apple to Under Armour, were forced to look for new avenues when factories shut down in China in February, accelerating the longer term trend of manufacturing moving to developing South-east Asian markets.

At the same time, e-commerce surged in the region as many countries went into lockdown. A report by Facebook and consultancy Bain revealed that 47 per cent of consumers in South-east Asia reduced their offline purchases while 30 per cent increased their online spending in the first six months of 2020. High mobile penetration, a growing middle class, and a young population have also contributed to the ongoing e-commerce boom.

Investor interest

These factors pushed the need for more and better warehousing options in the region. And investors are paying attention, well aware that the logistics sector has remained resilient due to its critical nature during the pandemic.

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Within the wider Asia-Pacific region, logistics assets remain highly attractive. JLL research shows that investors have raised more than US$7 billion in anticipation of targeting logistics assets in the region. JLL data reveals that industrial deals made up nearly 20 per cent of real estate investment activity in the first half of this year, with volumes dropping only 6 per cent year-on-year.

In South-east Asia, high-profile deals and joint ventures in the past few months include German logistics firm DB Schenker investing S$163 million in its new 550,000 sq ft warehouse at Singapore's Airport Logistics Park; and Deutsche Bank asset management arm DWS's acquisition of a US$53 million on the west side of the island.

Over in Indonesia, Keppel Corporation's asset management arm, Alpha Investment Partners, entered into a joint venture with Manulife and Mega Manunggal Property to buy and manage high-quality logistics properties in Indonesia with an initial target war chest of US$200 million.

We can expect both established and new investors to show greater interest in increasing their allocation to the logistics sector, with more platform deals instead of individual assets to follow.

At the same time, the strength of the sector has led to many investors holding off on trading assets. Instead, more owner-occupiers - mostly companies with well positioned and attractive assets - are considering sale and leasebacks. This enables them to lock in operating costs for a period of five to 10 years while taking advantage of strong pricing and the large volume of active buyers in the current market.

What's in demand?

The increased pressures of last mile fulfilment and the expectation that goods will reach customers quickly have meant the need for efficient supply chain fulfilment. Investors are looking for more modern facilities, in particular Grade A warehouses, which boast specifications such as higher load capacity, large floor plates, and cross docking features. Others have the advantage of being tech enabled to accommodate higher inventory levels and achieve shorter delivery times.

In terms of geography, countries with the large domestic markets like Indonesia, Vietnam, Malaysia and the Philippines are eyed by investors. Vietnam is particularly attractive, having the twin advantage of land routes to Indochina and a large population.

Earlier this month, it was reported that Mapletree Logistics Trust would be spending US$765 million acquiring properties in Vietnam, along with some in Malaysia and China. Australia-based logistics development firm Logos has also bought its first site in Vietnam. The 13-hectare development site in greater Hanoi is part of its US$350 Logos Vietnam Logistics Venture.

Singapore, despite its modest size, is gearing up to be a smart logistics hub. The most recent refreshing of the Logistics Industry Digital Plan, which was first launched in 2017, will further optimise operations and enhance warehousing capabilities in the city-state. Combined with its safe haven reputation, JLL projects that institutional investors are looking to deploy some US$20 billion of capital in logistics properties in Singapore.

In these times of uncertainty, the long-term stability of warehouses and their relatively firm capital values are more appealing to investors than ever. We can expect investors to reweigh their portfolios in favour of exposure to logistics compared to other asset classes, while keeping a lookout for existing assets and sites to develop their own.

  • The writer is head of industrial and logistics, JLL South-east Asia

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