Asian real estate investment: why logistics will continue to be a safe bet

Logistics is the only major commercial real estate sector to emerge stronger from the Covid-19 crisis

While the decline in yields in the logistics sector has raised concerns about a bubble in the making, strong fundamentals and post-pandemic trends point to a more positive story

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A woman works at a packing station at the Amazon fulfilment centre in Staten Island, New York City, in February 2019. If there is a logistics real estate bubble in the making, it is not in Asia, but in the United States, where yields have fallen below those on offices. Photo: AFP

Published: 6:45am, 8 Jun 2021Updated: 6:45am, 8 Jun 2021

Long before the Covid-19 pandemic struck, institutional investment in Asia’s burgeoning industrial and logistics property sector was increasing sharply. In 2018, transaction volumes surged to just over US$13 billion, nearly double the level in 2017, according to real estate consultant RCA, as the rapid growth in e-commerce fuelled demand for warehouse space.

The pandemic has proved a boon for the sector, accentuating the key drivers of the market – long-term demographic, economic and technological forces that are changing the way people live, work and shop – and turbocharging the adoption of e-commerce.

Among the main sectors in commercial real estate, logistics is the only one to have emerged from the crisis in a stronger position. In the first quarter of this year, logistics transactions in the Asia-Pacific region rose 26 per cent year on year, and accounted for 23 per cent of all commercial property deals, data from JLL shows.

While this is only half the share of office investments, which account for the bulk of the market in Asia, it is double the proportion five years ago. Indeed, from a sentiment standpoint, logistics is far and away the most popular type of commercial real estate.

The fierce appetite for Asian warehouses was evident in the findings of a survey published in January by the Asian Association for Investors in Non-Listed Real Estate Vehicles. Among the city-sector investment combinations most favoured by respondents, the industrial and logistics sector accounted for six of the top 10, with warehouses in Sydney and Melbourne ranked first and second respectively.

A man stands in front of a container ship at Port Botany in Sydney on May 31. A survey of institutional investors found that warehouses in Sydney and Melbourne were the top two city-sector investment combinations favoured by respondents. Photo: Bloomberg