The ESR-KS II JV is the second Korean development joint venture between Dutch pension fund manager APG, Hong Kong-listed ESR, and the Toronto-based Canada Pension Plan Investment Board (CPPIB). It was established in June 2020 with an initial equity allocation of $1 billion.
In an official announcement in June, ESR stated the three would increase the venture's equity capacity by up to another $1 billion.
Following the success of the ESR-KS II vehicle — APG owns a 35% stake — Graeme Torre, managing director and head of real estate in Asia Pacific for APG told AsianInvestor why the Dutch fund has decided to increase its investment.
“Korea’s macroeconomic environment has demonstrated resiliency in recent years in terms of growth in GDP, from both export and domestic demand amongst others. With such a backdrop, Korea’s logistics sector continues to show strong growth prospects,” said Torre.
APG made an initial investment of $350 million in ESR-KS II, with CPPIB putting in $450 million and ESR $200 million. More than 80% of the $1 billion equity allocation has been deployed across 1.3 million square metres of warehouse space now under development.
“Our partnership with ESR in the Korean market is now well established and has an exceptional track record in both investment performance and ESG. We continue to strive to meet our pension clients’ expectations on both fronts to create more sustainable logistics assets in this important Asian market,” he said.
KOREAN SECTOR TO GROW
APG expects to see the Korean logistics sector grow further because of its underlying strength and how the retail sector, and its customer base, is changing.
“With the ongoing shift of retail channels to online, inflow of new customer demographics,b and continued investments into last-mile delivery to enhance consumer experience, we expect room for further growth in the sector, as well as further institutionalisation of the logistics capital markets,” said Torre.
The Korean logistics market stands out in terms of attractive fundamentals and further expansion opportunities compared to other Asian markets, according to Torre.
“For the Korean logistics market, the digital infrastructure that the country has in place has facilitated rapid growth of the e-commerce industry and shifting consumer spending patterns,” he said.
“As a result, institutional capital has been flowing into the market, expediting the growth of the sector, and putting a downward pressure on the cap rates [the measurement that investors use to determine the expected rate of return based on the expected annual income of a property]."