While several property sectors including retail, hospitality and office have been hit hard by the COVID pandemic, industrial logistics is attracting inflows of new capital and has seen a healthy pipeline of M&A deals this month.
In Australia, while the MCSI Mercer Australian Core Property Fund index is down 3.4 per cent in the 12 months to 30 September, the largest pureplay logistics fund in the country, Charter Hall’s A$5.8bn Prime Industrial Fund, has delivered annualised total returns of 11.1%.
In the US, earlier this week KKR announced the purchase of four last mile distribution centres in Atlanta and Industrial Logistics Property Trust added a second institutional partner to its $680m US logistics focused JV.
Meanwhile over in Europe, Singapore sovereign wealth fund GIC announced a tie up with Melrose Partners to invest in European urban last mile logistics assets.
Not to be outdone Asia also witnessed its own major logistics deal last week with Blackstone taking a majority share in Guangdong’s largest logistics park for $1.1bn.
Two factors seem to be behind the positive news flow for the logistics sector. First is the rapid growth in online shopping and home deliveries driven by COVID-19 related lockdowns.
In addition, the COVID crisis has highlighted the fragility of global supply chains and forced companies to relook at on the security and efficiency of their supply chains. With lockdowns and border closures disputing supply chains, companies have looked to add redundancy to their supply networks, bring supply chains closer to their customers and ensure that their warehouses and distribution centre are provisioned with the latest technology to ensure fast and efficient delivery.
Looking forward, investor hopes for the sector seem high. Commenting on their European logistics deal, Lee Kok Sun, Chief Investment Officer of Real Estate, GIC, spoke of the sovereign wealth fund’s confidence in the long-term potential of the logistics sector, saying, “The urban logistics sub-market will benefit from positive fundamentals, reinforced by increasing occupier demand due to accelerating e-commerce adoption and changing supply chain management strategies.”
Charter Hall in Australia announced a second raising this week for their Prime Industrial Fund taking the total raised since April 2020 to A$2.6bn. Mirroring the rationale of GIC, Charter Hall’s Managing Director and Group CEO, David Harrison said, “The industrial and logistics sector continues to benefit from the rapid growth in online retailing and the focus on supply chain efficiencies. Most institutional investors are significantly underweight the industrial and logistics sector and recognise the potential growth and the attractive long-term, resilient returns available.”
Time will tell whether logistics can continue its strong run into 2021, but for now the sector appears to be providing a much need fillip for a commercial real estate market hit hard by the pandemic.