KEY DRIV­ERS THAT BUILT AS­SETS

Financial Chronicle - - DEEP DIVE -

Over the past five years, global in­vest­ment into in­dus­trial and lo­gis­tics prop­erty has dou­bled, reach­ing a to­tal of US$126 bil­lion in 2017. A sec­tor tra­di­tion­ally prized for its sta­ble in­come has re­cently seen dy­namic cap­i­tal growth, and lo­gis­tics fa­cil­i­ties now at­tract lower yields than re­tail prop­erty in some mar­kets.

This evo­lu­tion has been driven by ex­cep­tion­ally broad in­vestor ap­petite for the sec­tor, rang­ing from pri­vate equity ve­hi­cles and in­sti­tu­tional funds to pri­vate in­di­vid­u­als and fam­i­lies. Plat­form and port­fo­lio trans­ac­tions have be­come in­creas­ingly com­mon among larger in­vestors as they seek large-scale as­sets.

In west­ern mar­kets, the rise in on­line shop­ping is one of the key driv­ers stim­u­lat­ing this ap­par­ently in­sa­tiable ap­petite, as retailer de­mand for mod­ern dis­tri­bu­tion fa­cil­i­ties con­tin­ues to grow. In Europe, rental growth fore­casts for the sec­tor are healthy, as stock is scarce and de­mand high. Asia-Pa­cific mar­kets share these char­ac­ter­is­tics too. How­ever, as these five key trends demon­strate, they face an ar­guably more di­verse mix of in­vest­ment driv­ers, en­com­pass­ing global trade, man­u­fac­tur­ing growth and new in­fra­struc­ture op­por­tu­ni­ties.

China moves up the value chain: China’s growth over the past 30 years has been largely based on its sta­tus as the work­shop of the world. To­day, how­ever, the “Made in China 2025” ini­tia­tive rep­re­sents a con­certed ef­fort to move China up the value chain, with the ul­ti­mate aim

be­ing for China to com­pete glob­ally in man­u­fac­tur­ing in­no­va­tive tech­nolo­gies. Mod­ern lo­gis­tics fa­cil­i­ties and high-tech busi­ness parks a re­seek­ing more in­vest­ment to up­grade ex­ist­ing sites and re­gen­er­ate older brown­field sites.

E-com­merce in South-East Asia: A frag­mented mar­ket, lack of easy on­line pay­ment meth­ods and a strong shop­ping mall cul­ture means e-com­merce has not yet had the same pow­er­ful im­pact in South-East Asia that it has had in other re­gions. How­ever, with both Alibaba and Ten­cent in­vest­ing heav­ily in the re­gion in re­cent months and the in­tro­duc­tion of cross-bor­der pay­ment so­lu­tions, there is now sig­nif­i­cant scope for growth. And, as the re­tail mar­ket moves on­line, de­mand for mod­ern lo­gis­tics ware­hous­ing in close prox­im­ity to ma­jor ur­ban cen­tres and trans­port links will only in­crease fur­ther.

The Belt and Road Ini­tia­tive: China’s Belt and Road Ini­tia­tive is al­ready hav­ing an im­pact on mar­kets in the Eurasian re­gion and has led to in­vest­ment in trans­port links, power plants and eco­nomic zones to ben­e­fit Chi­nese con­trac­tors and des­ti­na­tion mar­kets. While ini­tial in­vest­ment has been fo­cused on in­fra­struc­ture, it is likely to en­cour­age low-cost man­u­fac­tur­ing to move to South-East Asia and Africa, es­pe­cially with new trans­port links pro­vid­ing sig­nif­i­cant op­por­tu­ni­ties in the lo­gis­tics sec­tor as sup­ply chains are up­graded.

The sheer scale of the vi­sion, cou­pled with vary­ing lev­els of in­sti­tu­tional ef­fec­tive­ness and mar­ket risks, means that progress is ex­pected to be patchy, with stag­gered op­por­tu­ni­ties. How­ever, Thai­land, Malaysia and Cam­bo­dia are al­ready see­ing in­ter­est from Chi­nese and in­ter­na­tional man­u­fac­tur­ers and real es­tate devel­op­ers.

Tax re­form in In­dia: In 2017, the largest tax re­form in In­dian his­tory was rolled out – the Goods and Ser­vices Tax (GST). Prior to this, iden­ti­cal prod­ucts were sold at dif­fer­ent prices across state bor­ders. Now, these price gaps have been closed, as the GST has re­placed fed­eral and state taxes, cre­at­ing much greater uni­for­mity and cer­tainty in the In­dian mar­ket. This is al­ready hav­ing a no­tice­able im­pact on sup­ply chains. The re­moval of check­points has re­sulted in faster dis­tri­bu­tion of goods, which has led to re­duced in­ven­tory hold­ing lev­els and, in turn, am­pli­fied de­mand for ware­houses by com­pa­nies look­ing to lever­age en­hanced economies of scale. The knock-on ef­fect has been an in­crease in ware­house con­sol­i­da­tion and, with it, ris­ing in­vestor in­ter­est.

The US vs. China: Trade ten­sions be­tween the US and China in 2018 have caused some busi­nesses to re­view their strate­gies and re­assess risk. Man­u­fac­tur­ers who may face in­creased tar­iffs if the sit­u­a­tion de­te­ri­o­rates could look at ad­just­ing their sup­ply chains, and many are al­ready look­ing at con­tin­gen­cies. If the sit­u­a­tion wors­ens, it could lead to busi­nesses seek­ing to cir­cum­nav­i­gate the po­ten­tial tar­iffs by reshoring or out­sourc­ing, which could im­pact Asia-Pa­cific economies.

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