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With many factory shutdowns in China, larger companies are drawn to Southeast Asia’s long-term stability of warehouses and its firm capital values.
The pandemic has impacted supply chains and production worldwide, with factory shutdowns in China, forcing large companies to look for new avenues.
This accelerates the longer-term trend of moving manufacturing to developing Southeast Asian markets, says Stuart Ross, Head of Industrial and Logistics at JLL Southeast Asia for The Business Times (BT).
Highlighting this trend is the latest headline on Singapore-headquartered logistics giant GLP stepping into Southeast Asia via a US$1.6 billion joint venture in Vietnam.
Investors are also riding on the e-commerce surged that the Southeast Asia region has seen, as many countries went into lockdown. 47% of consumers in the region reduced their offline purchases, while 30% increased their online spending in the first six months of 2020, according to a report by Facebook and consultancy Bain.
The e-commerce boom is attributed to “high mobile penetration, a growing middle class, and a young population”.
These factors pushed the need for more and better warehousing options, as investors are aware of the resilience in the logistics sector during the pandemic.
In a JLL research, it is revealed that investors have raised more than US$7 billion in anticipation of targeting logistics assets in the Asia-Pacific region. Industrial deals made up nearly 20% of real estate investment activity in the first half of 2020, with volumes dropping only 6% year-on-year.
Meanwhile, Southeast Asia sees high-profile deals and joint ventures in the past few months, including German logistics firm DB Schenker investing US$163 million in a 550,000 sq ft warehouse at Singapore’s Airport Logistics Park.
Ross expects both established and new investors to show greater interest in increasing their allocation to the logistics sector, with more platform deals instead of individual assets to follow.
Conversely, the strength of the sector has led to many investors holding off on trading assets. Instead, more owner-occupiers are considering sale and leasebacks to enable them to lock in operating costs for a period of five to ten years, while taking advantage of strong pricing and the large volume of active buyers in the current market.
Grade A warehouses, in particular, are in demand for its modern facilities, higher load capacity, large floor plates and cross docking features. Being tech-enabled to accommodate to high inventory levels and ability to achieve shorter delivery times is an advantage.
Investors favor countries with large domestic markets such as Indonesia, Vietnam, Malaysia and the Philippines. Vietnam is particularly attractive for its twin advantage of land routes to Indochina and its large population.
Large firms such as Mapletree Logistics Trust and Australia-based logistics development firm Logos have acquired properties for expansion in Vietnam.
Singapore’s aim to become a smart logistics hub is projected to attract institutional investors looking to deploy capital in logistics properties here. The most recent refreshing of the Logistics Industry Digital, first launched in 2017, will further optimize operations and enhance warehousing capabilities in the country.
“In these times of uncertainty, the long-term stability of warehouses and their relatively firm capital values are more appealing to investors than ever. We can expect investors to reweigh their portfolios in favour of exposure to logistics compared to other asset classes, while keeping a lookout for existing assets and sites to develop their own,” says Ross.
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