Fund houses rush to meet insto hunger for China logistics
Institutional investor demand for logistics assets in China is continuing to flourish, with several specialist experts raising new funds on the back of this rising interest.
Over the course of April real estate investment managers GLP, CBRE Global Investors and Logos Property raised more than $3.6 billion in combined capital commitments from asset owners for their respective China logistics investment vehicles, underlining the appetite for exposure to the country’s e-commerce market that is serviced by logistics.
Logistics continues to be one of the most attractive real estate sectors in China, as the country continues to urbanise and expand its middle class. In particular, the millennial population, which is the largest global cohort right now, is driving increased consumption and e‐commerce sales, a GLP spokeswoman told AsianInvestor.
Indeed, asset owners such as Korea's Public Officials Benefit Association have targeted logistics in Europe, and it and other real estate experts have pointed to logistics as a key area of opportunity globally.
Funds that focus on China logistics assets are likely to keep appealing to institutional investors due to the increasing popularity of online-commerce in the country. The global business model of many sectors, and particularly consumer sales, is shifting towards online, the chief investment officer of a Chinese institution told AsianInvestor.
Denmark's largest pension fund PFA is one major asset owner to have already pursued such possibilities in China, in alliance with both Logos and Ivanhoe Cambridge, the property investment arm of Canadian pension fund Caisse de dépôt et placement du Québec.
NEW FUND OPENINGS
GLP’s China Income Fund I, which closed on April 20, is the biggest of the three new China-focused funds, at $2.1 billion.
The latest fund from the Singapore-headquartered logistics asset manager is seeded with 34 stabilised, income-generating logistics assets in 18 cities across China. GLP has $89 billion in assets under management, $19 billion of which is in China-focused funds.
The fund is targeting logistics properties such as warehouses that are high quality, well-located and substantially leased, to ensure the fund appeals to institutional investors, a company spokeswoman told AsianInvestor. Seven onshore institutional investors participated in the fund, six of which are new limited partners to GLP.
The GLP spokeswoman declined to comment on the expected return of this fund and the average year-to-date performance of other China real estate funds in its portfolio.
Logos, Ivanhoé Cambridge and Bouwinvest also said on Friday (April 24) that they have completed a first close to establish a $800 million logistics development venture in China. The venture is backed by two institutional investors and a Gulf-Cooperation Council investor.
Investments will commence when China’s market conditions stabilise following Covid-19, Logos said in a statement.
In addition, CBRE closed its CBRE Logos China Logistics Club Fund with equity commitments totalling Rmb5.5 billion ($786 million) from eight investment partners from mainland China and offshore jurisdictions in early April.
COVID-19 IMPACT
While China’s fundamentals and demographics appear to support the appeal of logistics assets, some market observers believe the near-term performance of funds focusing on them could be restrained by the far-reaching fallout of the Covid-19 outbreak.
While the country is gradually allowing work and manufacturing to gradually resume, every province in China has its own road control measures amid Covid-19. These disrupts logistics services, Zhang Wei, chief macro strategist at Shanghai-based Kunlun Health Insurance, told AsianInvestor.
But investment managers operating in the sector argue that the coronavirus outbreak has fuelled demand for logistics-reliant online consumption as large numbers of people are forced to stay at home. In fact, people have had to become more familiar with the e-commerce sector, which should further ensure it continues to thrive in the years to come.
Shane Taylor, head of Asia Pacific strategy and research at CBRE, said the theme of modern logistics has been put to the ultimate test in recent months in China and it seemingly has passed.
“As the Covid-19 control measures required mass lockdowns of households across the country, the key sector occupiers of e-commerce and third-party logistics firms have worked hard to deliver essential goods for household consumption. The relevance of this sector cannot be understated,” he said.
Warner Brown, Shanghai-based research director at JLL, is also upbeat about the medium-term growth of the sector. China reached more than 800 million internet users in 2018 and e-commerce revenues are expected to grow by 53% from $718 million in 2019 to $1.1 billion by 2023, according to JLL.
One highly likely outcome is that the long term appeal of the sector leads more real estate and infrastructure investment firms to seek to launch logistics funds. GLP’s spokeswoman said it was very important that investors take a disciplined investment approach using data driven insights.