Asia Pacific logistics sector maturing as investors and occupiers reimagine strategies
Investment strategies to pivot towards platform deals; and occupiers to further embrace smart logistics solutions
Shanghai, 16 September 2020 - Investors and occupiers are reimagining logistics strategies in Asia Pacific to take advantage of ongoing structural shifts in the sector’s real estate landscape. According to JLL, increasing capital allocation into the sector, the shift towards e-commerce accelerated by the COVID-19 pandemic, and strong exposure to fast-growth industries, have rapidly shifted how logistics real estate functions and operates, with implications for both owners and occupiers of this asset class.
Across Asia Pacific, COVID-19 has influenced both investment flow and leasing demand. Uncertainty around underwriting assumptions including rent and vacancy forecasts, costs of capital, travel restrictions, and lack of pricing visibility has limited volumes in 1H20, declining by 32% year-on-year. Despite these headwinds, logistics sector remains relatively resilient, with transactions reaching US$11.1 billion, just 6% lower than the same period a year ago. Investor sentiment towards the Asia Pacific logistics sector remains positive.
“The COVID-19 outbreak may have a short-term impact, but China’s consumer story is a long-term trend that will accelerate the logistics evolution. As consumer trends evolve, investors and operators must adapt to changes in how retail sales manifest as warehouse demand,” says Richard Huang, Head of Supply Chain and Logistics Service, JLL, China, “With some of the market’s biggest customers increasingly turning to self-use space, it is essential for property owners to consider other evolving and emerging types of tenants in China.”
As investors continue to reimagine their Asia Pacific logistics strategies, JLL forecasts several key themes to gather momentum and reinforce the structural shift occurring in the sector.
- Pursuit of platform deals: There is an increasing trend towards acquiring logistics platforms rather than individual assets. Investors gain captive tenant networks and achieve scale quickly through this sophisticated transaction route.
- Rapid institutionalisation: The world’s largest investors are investing more into logistics real estate. Additionally, a sizeable portion of new supply is large-scale modern logistics assets of institutional grade, which are expected to draw more institutional capital.
- Value upside: While growth in values is likely to slow between 2020 and 2023, investors’ confidence in the structural drivers for the logistics sector is expected to remain intact. Capital values are forecast to stay relatively firm, with modest yield compression expected in some markets across the region.
Overall leasing demand in the region has inevitably slowed during the first half of 2020, with net absorption around 700,000 sqm lower in 1H20 (2.2 million sqm) than in 1H19 (2.9 million sqm).
However, there has been a spike in short-term demand, particularly from grocery retailers and health service firms. Supply chains continue to be impacted, resulting in a greater focus on supply chain risk mitigation and resilience.
Changing customer demands and consumer habits will drive ongoing change in the strategies of logistics occupiers in Asia Pacific. Key shifts influencing occupier decision-making, which JLL expects to accelerate, include:
- Multi-storey logistics developments: Densely populated cities, limited logistics land availability, and relatively high land prices have supported multi-storey logistics developments in many markets in the region, with demand now emerging in Australia and India.
- The evolution of last mile logistics: Expect to see more conspicuous shifts to urban logistics, delivery optimisation, cross docking centres, and the use of autonomous vehicles.
- Integration of automation and technology: Traditional labor-intensive and low-tech logistics facilities of the past are making way for high-tech, highly automated facilities. Integration of technology and greater utilization of processes that enable automation are already key considerations for most leading occupiers and developers, with the strategic outcome of improving production efficiency.
Note:  JLL tracked markets in mainland China (Tier 1 and 2), Hong Kong China, Tokyo, Singapore
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion in 2019, operations in over 80 countries and a global workforce of nearly 93,000 as of June 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.