Logistics: Capitalizing on disruption

As e-commerce enhances demand for logistics real estate, GLP is changing its approach to technology, leasing and more to keep growth firmly on the agenda, says chief investment officer Alan Yang

With the completion of Global Logistic Properties purchase of European platform Gazeley, the industrial giant now reaches every major global market. The firm is not done expanding yet, though, as it considers how technology is changing logistics demand and how capital structures should shift in tandem with opportunities, explains chief investment officer Alan Yang.

PERE: Why has logistics become such an important and strategic asset class for institutional investors globally in the last few years? 

Alan Yang: It’s a couple of factors. The property type delivers very attractive cash returns. It’s a relatively low capital expenditure asset class. You get long-term leases in place and generally, credit of customers is pretty good. In the last couple years, logistics fundamentals have outperformed and with the help of e-commerce, the industry has started to catch people’s eyes.

In addition, larger opportunities of scale have come about. Traditionally, organizations would develop one building at a time. Since the global financial crisis, there have been more opportunities to pick up scale, another component which makes GLP’s recent expansion attractive to investors. Rather than facing binary risk in small chunks, institutions now can invest in diversified portfolios with attractive fundamentals and long-term cashflows.

PERE: How do e-commerce and demographic trends influence the demand for logistics?

Yang: GLP to expand fund offerings as demand grows

AY: Everyone uses the word ‘disruptive’ around technology and e-commerce. For logistics, we’ve seen those as enhancements to our business. We can see our customers’ supply chains reconfiguring as a result of their e-commerce plans, which changes the way that we think about assets – their locations, designs and infrastructure. The unprecedented magnitude of the buildout of some of these e-commerce buildings has also changed how we design our leases. The facets of our business are constantly changing, and being able to be at the front end of that has enabled us to position ourselves well to grow with these trends and with our customers.

In the US in particular, we hear all this talk about millennials as the biggest age cohort. That generation is the most technologically advanced and adaptive, growing up with the internet. Their consumption patterns are specifically geared toward convenience. E-commerce and warehouses are the most direct beneficiaries of the advent of the internet. As the e-commerce experience gets closer to the instant gratification of offline retail, this will continue to drive warehouse demand.

Of course, beyond millennials, e-commerce is a widespread phenomenon. But when you look at the ever-shortening delivery times – my parents would be happy with two days, but my wife and I want two hours – that all enhances the demand for logistics.

PERE: How are you capitalizing on technological innovations in the logistics space? 

AY: From a technology standpoint, GLP has made strategic investments in the robotics, big data and capital management areas. These are technological advancements that help us be not just a provider of space, but also a provider of a broader array of services to our customers, our partners and our investors.

“As the e-commerce experience gets closer to instant gratification of offline retail, this will continue to drive warehouse demand”

One of the strategic investments we made was in G7, a leading logistics big data platform that tracks detailed information on trucks, drivers and cargo, in real-time. The data and insights are collected and used to optimize truck utilization, which ultimately reduces operating costs for our customers. In addition, G7 helps improve driver safety through location tracking. Having the data to manage both of those factors creates a very nice opportunity, particularly for the smaller users who don’t do it themselves. It also helps us see what our customers are doing at the end of the day. It’s a cost-saver for our customers and creates tenant stickiness for us.

PERE: How do you manage general partner and limited partner considerations?  

AY: When we fundraise, there’s a constant matching of opportunities with capital. GLP views the connectivity of our business and our scale as some of our key advantages, so we’re agnostic as it relates to various funds and vehicles. We run our business and our portfolios as one holistic business that supports and complements our different assets and exposures. It’s a better outcome when we think of our business that way.

GLP also offers different products – funds for development, emerging markets and core operating assets in developed markets. Our various LPs can tap into any of these products.

PERE: What is your M&A outlook for 2018?

AY: Historically in our space, there weren’t too many big transactions prior to the global financial crisis, but coming out of it, the dynamics were different. GLP has adapted quickly to the new environment to grow its position in the logistics industry and our scale and global footprint has enabled us to chase these larger opportunities in the market. We have strong access to capital as we have a high-quality investor base around the world. Our established track record and exposure with them means they have been willing to support us as we move around the world and capitalize on these new opportunities.

In 2018, there’s continued demand for logistics assets. But the opportunities themselves are priced tighter than 12-24 months ago. While there are several key opportunities and there is capital available, the capital is being very selective about the opportunities they are entering into. However, if you look at last year’s volumes globally, those types of transactions like our privatization and the sale of European logistics platform Logicor probably won’t be replicated in 2018. In the smaller size range, though, there will be plenty of opportunities.

Opportunistic mindset: GLP Park Baoshan Yuepu in Shanghai

PERE: Where do you see potential growth areas and where will you focus on investing?

AY: We have an entrepreneurial mindset about where we go and we continue to remain opportunistic but disciplined. At this point with the entry to Europe, we’ve made it fully around the world. GLP is in the largest markets we want to be in. We’ll continue expanding within those markets and we’ll continue to utilize our fund management platform to establish new vehicles. As we increase our footprint beyond where Gazeley is, I think you’ll see us raising new vehicles in all of our existing markets.

In China, at this point we’ve developed so much and we have such a big hard asset concentration that we can see ourselves raising income funds. Within GLP’s markets, you’ll see us offer similar products, wherever the demand sits and the opportunities match it.


This article is sponsored by GLP. It appeared in the Investing in Logistics supplement with the February 2018 issue of PERE.