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Investor appetite for Asia logistics surpasses offices and retail

Investor interest in Asian logistics has now surpassed both the region’s office and residential sectors, and transaction volume in logistics grew to $6.5 billion in 1H2013, according to a Deutsche Asset & Wealth Management report.


Asia’s logistics market, once a non-entity in terms of real estate investment strategies, has grown to become one of the most appealing sectors for investors, with more than 43 percent of institutions and fund managers in the region expressing an intention in invest in at least one of Asia’s logistics markets.

According to a Deutsche Asset & Wealth Management report, the four most popular logistics markets in the Asia Pacific were Japan, greater China, Australia, and Southeast Asia. In a survey jointly conducted by Deutsche and the Asian Association for Non-listed Real Estate Vehicles (ANREV), 28 percent of fund managers, 43 percent of funds of funds and 18 percent of investors expressed an intention to invest in Japanese logistics.

In the same survey, while 18 percent of fund managers, 14 percent of funds of funds and 32 percent of investors expressed the same interest for greater China, 14 percent of fund managers, 29 percent of funds of funds and 11 percent of investors for Australia, while 4 percent of fund managers and 11 percent of investors expressed an intention to invest in Southeast Asian logistics. Interestingly, no funds of funds expressed investment interest in Southeast Asian logistics.

This combined interest outstrips interest in the most popular Asian office, retail and residential markets. According to the same survey, only 37 percent of fund managers, 14 percent of funds of funds and 35 percent of investors said they were going to invest in the Australian office sector, while 28 percent of fund managers, 29 percent of funds of funds and 22 percent of investors pointed to greater China’s retail sector as a target.

“In short, [over the past few years] the stage had been set for the logistics sector to take off,” the Deutsche explained, pointing to the growth of Asia’s trade volume and the growing affluence of the local population as catalysts for growth. “It has since become one of the region’s most sought-after property choices among yield-seeking investors in the last two years.”

Deutsche’s report suggested that the popularity of the sector could be explained by its returns.  Since 2007, the average cap rate of industrial sector deals in Asia has consistently outperformed that of office, retail and residential by at least one percentage point, sometimes two. The average cap rate on closed logistics deals in the Asia Pacific stood at 8 percent as of 1Q 2013.

Investor interest was also reflected in deal volume. Over the past three years, the transaction volume of logistics assets in Asia has been at or above 12 billion, and the first half of 2013 had about $6.7 billion of logistics deals completed.

The ratio of logistics deals as a share of total commercial real estate transactions has also been steadily rising since the onset of the global financial crisis, according to the study. It stood at 9.8 percent in 2007, and grew to 12.1 percent in 2012. For the first half of 2013, the ratio was about 14 percent.