Beyond e-commerce: Five drivers of change in the Asia Pacific logistics investment space
Trends at play in Asia Pacific, beyond e-commerce, are attracting real estate investors to industrial property and influencing developers and occupiers.
In 2018 the global logistics sector surpassed the institutional residential sector as the most-favoured property investment asset in terms of capital fundraising, with real estate professionals viewing it as the preferred route to superior value and growth. In 2018, funds focused on logistics raised over $12 billion, compared to a figure of $2 billion for funds focused on retail. In contrast, in 2014, capital allocation to both sectors was almost at parity, with $8 billion logged to retail and $8.9 billion to logistics1.
E-commerce is the greatest factor driving change and investment opportunity in the logistics sector. Online shopping is huge. In 2018, South Korea's e-commerce penetration rate -- the share of online sales to all retail sales -- was the highest in the world at 18%, and is forecast to top 30% by 2021, reports JLL's The Investor. As retailers respond with omnichannel strategies, demand for warehouse space and ancillary services such as those provided by third-party logistics companies (3PLs) is rising exponentially, and attracting investor attention to industrial real estate.
However, there are additional market and technological factors which are driving investment opportunity in the sector. Here we look at five drivers beyond e-commerce.
Location is more critical than ever
The ubiquity of online shopping means that customers expect faster delivery times, and warehouse location is of paramount importance. In China, for example, online consumers are driving demand for better located distribution centres.
Consequently, industrial and logistics occupiers require warehouse locations close to population centres and transportation infrastructure. Proximity to labour forces and talent is also key. These factors enable owners to attract and retain high-value occupiers by 1) improving operational efficiencies, and 2) by providing access to a talented workforce.
Technologies are shaping industrial property design
The logistics sector is primed for greater and more innovative implementation of technologies. The application of robotic systems, autonomous vehicles and delivery drones are changing warehouse design and end-user requirements. This will boost build to suit development, with positive upside for owners, developers and occupiers.
New industrial hubs are coming on stream
Southeast Asia is growing in importance as a manufacturing hub for multinationals, resulting in increased demand for warehouse and logistics facilities. The region's positive economic outlook, supportive demographic profile, and rising middle class wealth, is underwriting the expansion in the sector. The growth potential for the Southeast Asia industrial sector is strong, particularly in Indonesia and Vietnam. This is set to result in significant opportunities for players in the logistics space.
Where are the truck drivers?
Workforce availability impacts business decision-making. In Japan, a shortage of truck drivers and warehouse workers is now a critical issue in the logistics industry. Older facilities with low truck capacity and building specifications that preclude automated work procedures mean greater loading and waiting times and higher driver and worker costs. These factors are driving demand and migration to newer, larger facilities that enable the integration of automation systems, increasing productivity and margin growth.
Supportive government policy-making is boosting opportunities
In India, government policy -- including establishing an official logistics department and granting infrastructure status to logistics -- is boosting development and investment into the sector, particularly with the entrance of offshore owners and developers. In the Delhi NCR corridor area specifically, an expanding 3PL sector and integration of technology and automation into the warehousing and logistics space are generating new occupier demand.
In South Korea, authorities in Seoul are promoting inner-city logistics centres redeveloped from obsolete bus terminals. The new hubs are aimed at quick delivery e-commerce and B2C service providers, and offer excellent accessibility and proximity to transportation infrastructure, presenting new opportunities for domestic and overseas investors.
The expansion of the Asia Pacific logistics sector reflects the region's overarching positive macroeconomic fundamentals. "The magnitude and scale of the socio-economic shifts in Asia Pacific and the ongoing structural industry changes provide a clear growth story for the sector over the medium to long term," says Peter Guevarra, our Research Director for Asia Pacific at JLL.
Read JLL’s Logistics: Beyond warehousing to find out why industrial and logistics are the next big thing in Asia Pacific. The whitepaper features in-depth, market-by-market analysis.
1. PERE "Investing in Logistics & Distribution" February 2019
SOURCES: JLL, PERE