reporter2
23-08-21, 16:50
No let-up in warehouse investing frenzy
With strong fundamentals and riding on mega trends, logistics property appears to be a good space to be in but there are challenges
Aug 17, 2021
SWANKY malls? Trophy offices? Not quite the flavour of the pandemic. Instead, it's logistics properties: Singapore groups are busy buying warehouses.
In May, Frasers Logistics and Commercial Trust (FLCT) announced the purchase of four logistics and industrial properties in Germany and the Netherlands; together with a logistics and industrial property and a business park in the United Kingdom (UK) for an agreed property purchase price of around S$548.7 million. This acquisition marks FLCT's maiden entry into the logistics sector in the UK.
For year ended March 31, 2021, Mapletree Logistics Trust (MLT) spent S$1.6 billion in buying 18 modern specifications logistics facilities in Australia, China, Vietnam, Japan, South Korea and India, plus the remaining 50 per cent interest in 15 properties in China.
In November last year, Mapletree Investments announced the purchase of a 116,431 square metre site in Kyushu, Japan, to build the largest logistics warehouse space in the Kyushu region for a total investment of over S$550 million.
In the same month, Mapletree Investments completed the purchase of a 36.3 hectare site in Brisbane, Australia, that will be developed into Mapletree Logistics Park - Crestmead.
In late June, CapitaLand unveiled the sale of partial stakes in six of its Raffles City developments in China to Ping An Life Insurance Company. CapitaLand will deploy some of the over S$2 billion in net proceeds from this sale to invest in new economy assets such as business parks, logistics and data centres.
In July, CapitaLand said it will invest about 7.5 billion yen (S$90.8 million) to buy a freehold site and develop a modern logistics facility in Osaka, Japan. This move follows the group's maiden foray into Japan's logistics sector through a joint venture with Mitsui RE to develop and operate a logistics property in Greater Tokyo.
Also in July, CapitaLand launched its second logistics private fund in India worth S$400 million. CapitaLand India Logistics Fund II will invest in the development of logistics assets in Ahmedabad, Bangalore, Chennai, Mumbai, the National Capital Region and Pune, and in emerging markets.
Investors in logistics properties have enjoyed good returns. Mapletree Investments achieved a net internal rate of return of 23.7 per cent for private fund investors from completing a successful exit in 2020 of a fund launched in 2014 to invest in logistics development assets and select completed logistics assets in Japan.
Amid the pandemic, MLT posted a 2.3 per cent rise in distribution per unit (DPU) from a year ago for the year ended March 31, 2021. Over the last five financial years, DPU and net asset value (NAV) per unit rose by about 12 per cent and 28 per cent respectively.
For the quarter ended June 30, 2021, MLT's DPU rose 5.7 per cent year on year (yoy). As at end-June, its portfolio occupancy was 97.8 per cent.
ARA Logos Logistics Trust, which is focused on logistics warehouse assets in Singapore and Australia, saw DPU rise 10.6 per cent yoy in the first half of 2021.
Helped by an increase in value of investment properties, the trust's NAV per unit as at June 30, 2021, rose 17.5 per cent from six months ago. Average cap rate of ARA Logos' properties tightened to 5.4 per cent as at end-June from 6.3 per cent six months ago.
FLCT, which has around 58 per cent of its portfolio comprising logistics and industrial assets, posted a rise in DPU of 9.5 per cent yoy for its first half ended March 31, 2021. In April, FLCT joined the benchmark Straits Times Index.
Strong structural forces underpin the solid returns for investors and the insatiable appetite for warehouses.
A key driver is the growth of e-commerce. Robinsons has returned to Singapore as an online department store, after closing its last physical outlet in January. The new online store does not need retail floor space but would use warehouse space.
According to MLT's latest annual report, structural change in consumer behaviour, which has been accelerated by the pandemic, is expected to drive online retail sales in Asia Pacific to US$2.5 trillion in 2024 from US$1.5 trillion in 2019, reflecting a compound annual growth rate (CAGR) of 11.3 per cent.
CapitaLand said the logistics sector is the fastest growing real estate sector in Japan, fuelled by the e-commerce market that is expected to grow at a CAGR of 7.5 per cent to 2024.
Another key driver for logistics properties is the search for supply chain resilience. Amid the pandemic, United States-China trade wars and geopolitical tensions, businesses are working to make supply chains less susceptible to disruptions.
Companies employing strategies such as China plus one and those transitioning from just-in-time to just-in-case manufacturing are generating demand for network diversification and modern logistics facilities.
Economic recovery in many Asian economies coupled with rising domestic consumption are also expected to boost demand for warehouse space.
The signing by Asia-Pacific nations last November of the Regional Comprehensive Economic Partnership (RCEP), the largest free trade agreement in history, could increase cross-border trade flows, which benefits demand for warehouses. The RCEP represents a population of over 2.2 billion people and covers 30 per cent of global trade.
Threats exist
But while the logistics sector is performing well, buoyed by resilient demand from the consumer staple and healthcare sectors and robust e-commerce growth, warehouse owners had to help tenants in some badly affected sectors by providing support and relief measures, including rental rebates and deferrals.
Moreover, it is not easy for new players searching for gold in warehouses. Owners and operators need scale to service client needs across geographic markets.
Landlords also need to be customer-centric to build strong tenant relationships, so as to understand dynamic business requirements and changing industry trends.
Each warehouse market has its unique drivers. For Singapore, JLL expects the country's continued progression towards higher value-adding and value-creating manufacturing activities, such as research and development, speciality chemicals and additive manufacturing, to underpin end-user demand for higher specification and specialised logistics facilities, like chemical warehouses and cold rooms.
The warehouse frenzy looks set to continue amid abundant liquidity. Fundamentals of warehouses look strong unlike some other property asset classes such as malls which are under siege from online shopping, offices where remote working poses a major threat, and hotels where uncertainty lingers over the return of international travel.
Threats exist. People may consume less to minimise environmental footprint. Greater protectionism could curtail trade flows. Some economies may struggle to recover from the pandemic amid weak fiscal positions and hence suffer from lacklustre domestic consumption. Certain warehouses may become obsolete.
Buying warehouses can be challenging as a flood of new entrants and investment capital jostle for limited supply. Warehouse giant GLP has observed that prices have risen in many of its markets, in some cases increasing by more than 20 per cent, over the last 12 months.
Riding on mega trends, logistics property appears to be a good space to be in. Equity investors concur with MLT trading at premium to last reported NAV of around 60 per cent.
Modern warehouses are likely to remain a top pick for property investors. Expect groups such as Mapletree Investments and CapitaLand to keep actively foraging, amid intense competition, for prized warehouse opportunities.
With strong fundamentals and riding on mega trends, logistics property appears to be a good space to be in but there are challenges
Aug 17, 2021
SWANKY malls? Trophy offices? Not quite the flavour of the pandemic. Instead, it's logistics properties: Singapore groups are busy buying warehouses.
In May, Frasers Logistics and Commercial Trust (FLCT) announced the purchase of four logistics and industrial properties in Germany and the Netherlands; together with a logistics and industrial property and a business park in the United Kingdom (UK) for an agreed property purchase price of around S$548.7 million. This acquisition marks FLCT's maiden entry into the logistics sector in the UK.
For year ended March 31, 2021, Mapletree Logistics Trust (MLT) spent S$1.6 billion in buying 18 modern specifications logistics facilities in Australia, China, Vietnam, Japan, South Korea and India, plus the remaining 50 per cent interest in 15 properties in China.
In November last year, Mapletree Investments announced the purchase of a 116,431 square metre site in Kyushu, Japan, to build the largest logistics warehouse space in the Kyushu region for a total investment of over S$550 million.
In the same month, Mapletree Investments completed the purchase of a 36.3 hectare site in Brisbane, Australia, that will be developed into Mapletree Logistics Park - Crestmead.
In late June, CapitaLand unveiled the sale of partial stakes in six of its Raffles City developments in China to Ping An Life Insurance Company. CapitaLand will deploy some of the over S$2 billion in net proceeds from this sale to invest in new economy assets such as business parks, logistics and data centres.
In July, CapitaLand said it will invest about 7.5 billion yen (S$90.8 million) to buy a freehold site and develop a modern logistics facility in Osaka, Japan. This move follows the group's maiden foray into Japan's logistics sector through a joint venture with Mitsui RE to develop and operate a logistics property in Greater Tokyo.
Also in July, CapitaLand launched its second logistics private fund in India worth S$400 million. CapitaLand India Logistics Fund II will invest in the development of logistics assets in Ahmedabad, Bangalore, Chennai, Mumbai, the National Capital Region and Pune, and in emerging markets.
Investors in logistics properties have enjoyed good returns. Mapletree Investments achieved a net internal rate of return of 23.7 per cent for private fund investors from completing a successful exit in 2020 of a fund launched in 2014 to invest in logistics development assets and select completed logistics assets in Japan.
Amid the pandemic, MLT posted a 2.3 per cent rise in distribution per unit (DPU) from a year ago for the year ended March 31, 2021. Over the last five financial years, DPU and net asset value (NAV) per unit rose by about 12 per cent and 28 per cent respectively.
For the quarter ended June 30, 2021, MLT's DPU rose 5.7 per cent year on year (yoy). As at end-June, its portfolio occupancy was 97.8 per cent.
ARA Logos Logistics Trust, which is focused on logistics warehouse assets in Singapore and Australia, saw DPU rise 10.6 per cent yoy in the first half of 2021.
Helped by an increase in value of investment properties, the trust's NAV per unit as at June 30, 2021, rose 17.5 per cent from six months ago. Average cap rate of ARA Logos' properties tightened to 5.4 per cent as at end-June from 6.3 per cent six months ago.
FLCT, which has around 58 per cent of its portfolio comprising logistics and industrial assets, posted a rise in DPU of 9.5 per cent yoy for its first half ended March 31, 2021. In April, FLCT joined the benchmark Straits Times Index.
Strong structural forces underpin the solid returns for investors and the insatiable appetite for warehouses.
A key driver is the growth of e-commerce. Robinsons has returned to Singapore as an online department store, after closing its last physical outlet in January. The new online store does not need retail floor space but would use warehouse space.
According to MLT's latest annual report, structural change in consumer behaviour, which has been accelerated by the pandemic, is expected to drive online retail sales in Asia Pacific to US$2.5 trillion in 2024 from US$1.5 trillion in 2019, reflecting a compound annual growth rate (CAGR) of 11.3 per cent.
CapitaLand said the logistics sector is the fastest growing real estate sector in Japan, fuelled by the e-commerce market that is expected to grow at a CAGR of 7.5 per cent to 2024.
Another key driver for logistics properties is the search for supply chain resilience. Amid the pandemic, United States-China trade wars and geopolitical tensions, businesses are working to make supply chains less susceptible to disruptions.
Companies employing strategies such as China plus one and those transitioning from just-in-time to just-in-case manufacturing are generating demand for network diversification and modern logistics facilities.
Economic recovery in many Asian economies coupled with rising domestic consumption are also expected to boost demand for warehouse space.
The signing by Asia-Pacific nations last November of the Regional Comprehensive Economic Partnership (RCEP), the largest free trade agreement in history, could increase cross-border trade flows, which benefits demand for warehouses. The RCEP represents a population of over 2.2 billion people and covers 30 per cent of global trade.
Threats exist
But while the logistics sector is performing well, buoyed by resilient demand from the consumer staple and healthcare sectors and robust e-commerce growth, warehouse owners had to help tenants in some badly affected sectors by providing support and relief measures, including rental rebates and deferrals.
Moreover, it is not easy for new players searching for gold in warehouses. Owners and operators need scale to service client needs across geographic markets.
Landlords also need to be customer-centric to build strong tenant relationships, so as to understand dynamic business requirements and changing industry trends.
Each warehouse market has its unique drivers. For Singapore, JLL expects the country's continued progression towards higher value-adding and value-creating manufacturing activities, such as research and development, speciality chemicals and additive manufacturing, to underpin end-user demand for higher specification and specialised logistics facilities, like chemical warehouses and cold rooms.
The warehouse frenzy looks set to continue amid abundant liquidity. Fundamentals of warehouses look strong unlike some other property asset classes such as malls which are under siege from online shopping, offices where remote working poses a major threat, and hotels where uncertainty lingers over the return of international travel.
Threats exist. People may consume less to minimise environmental footprint. Greater protectionism could curtail trade flows. Some economies may struggle to recover from the pandemic amid weak fiscal positions and hence suffer from lacklustre domestic consumption. Certain warehouses may become obsolete.
Buying warehouses can be challenging as a flood of new entrants and investment capital jostle for limited supply. Warehouse giant GLP has observed that prices have risen in many of its markets, in some cases increasing by more than 20 per cent, over the last 12 months.
Riding on mega trends, logistics property appears to be a good space to be in. Equity investors concur with MLT trading at premium to last reported NAV of around 60 per cent.
Modern warehouses are likely to remain a top pick for property investors. Expect groups such as Mapletree Investments and CapitaLand to keep actively foraging, amid intense competition, for prized warehouse opportunities.