ESR targets $5bn for Korea’s first open-end core logistics fund

The Hong Kong-based firm has received an initial commitment of more than $400m from an anchor investor in the fund.

ESR Group continues to see investor appetite for income-producing logistics assets in South Korea, despite current oversupply issues.

Last week, ESR’s South Korea platform ESR Kendall Square launched the first-ever open-end core logistics fund focused on the country. Thomas Nam, chief executive officer of ESR Kendall Square, told PERE the firm plans to grow ESR Korea Logistics Core Fund’s assets under management to $3 billion within the first three years and $5 billion in the longer term.

The fund has been seeded with seven assets developed and managed by ESRKS. The Hong Kong-based manager will acquire and operate high-quality, income-producing assets from third-party entities in addition to assets currently in ESRKS’s development pipeline.

Prior to launching the fund, ESR had already managed two development joint ventures in Korean logistics via the ESRKS platform: ESRKS Development Joint Venture 1 and 2. DevJV 1 and DevJV 2 began investing in 2015 and 2020, respectively. Both ventures were anchored by Dutch pension fund APG Asset Management, Canadian pension fund CPP Investments and ESR. APG and CPPIB are also investors in the core fund where APG has made an initial commitment of more than $400 million, according to a statement.

The new logistics strategy comes at a time when the logistics market in South Korea has a growing oversupply problem. According to CBRE, logistics stock in the Greater Seoul area is projected to increase by 20 percent by the end of 2024 and the vacancy rate is expected to hit a record high.

“If we take a closer look at the detailed market data, the oversupply issue is likely to be temporary as new warehouse development commencements have substantially slowed down for the past year – it is also mostly limited to certain geographic regions and is more in the cold storage space,” said Nam.

He said the oversupply issue would therefore not deter investors that are looking for long-term, income-generating assets. That said, he noted that warehouse pricing has further bifurcated in recent quarters, with prices holding up well for long-term-hold or good-quality assets while marginal products suffered price losses.

“As such, the key for the launch timing (of the core fund) is to have such quality assets ready in number which we have achieved through our development pipeline,” Nam added.

With a total gross floor area of one million square meters, the seven seeded assets in the core fund have an average occupancy of over 99 percent, with weighted average lease expiry of 4.6 years. The assets have modern ESG features such as rooftop solar power systems and electric vehicle charging stations for forklifts to enable tenants to enhance operational efficiency. The warehouse tenants include major e-commerce and global third-party logistics companies.