Article

Logistics and Industrial Market Insights

May 28, 2022 / By ,

Strong demand balances supply side pressures

Demand remained robust in 1Q22 across most major markets. While there were some short term, isolated disruption because of the Lunar New Year, underlying demand was solid. E-commerce and logistics firms were key sources of demand. Demand from cold storage operators was also evident as well as from operators who require last-mile facilities. With economic growth set to expand further this year, demand levels may increase further. However, risks persist. China has recently locked down some major cities to contain COVID-19 outbreaks, while the Russia-Ukraine war may weigh on sentiment.

Asia Pacific is in the midst of a strong supply cycle, with 2022 completions expected to be very high again. However, quarterly figures can be volatile. There were no new major completions in Beijing, Shanghai and Hong Kong, while seven projects were completed across Greater Tokyo. Construction delays in Sydney have pushed back many projects originally slated for completion in 1Q22, while supply in Melbourne was high in the quarter. Average vacancy moved marginally higher, mainly owing to supply side factors.

Rents rising at a faster pace

Rents continued an upward trajectory, with rents rising by 0.8% q-o-q and 3.7% y-o-y. Greater China rents accelerated further. Similar to conditions in 2021, competition for higher quality projects intensified, with landlord sentiment also continuing to trend upwards. Rents increased in Tokyo, despite supply driving a sharp rise in vacancy. In Australia, Sydney rental growth has begun to accelerate significantly in 1Q22, as low vacancy has given landlords greater bargaining power. Rents in the Melbourne market also continued to increase, after growth of more than 10% in some precincts last year.

Investment market momentum continues

Last year, volumes reached USD 48.2 billion. This was the highest on record and accounted for 27% of all sector volumes in Asia Pacific. Ongoing structural changes to asset allocations, and changes to operations of logistics real estate and supply chain networks have converged to accelerate investment into the sector. This strong momentum continued in 2022, with 1Q22 volumes reaching USD 8.2 billion. The focus on logistics and industrial assets has translated to further moderate yield compression and capital value growth in some markets. The pace of yield compression has slowed from recent quarters, but the broad trend remains down. Values rose between 0.2% and 6.8% q-q across the major markets.

Expanding logistics markets support positive outlook

Demand will continue to be underpinned by e-commerce and 3PL sector requirements. Pure online retailers are leasing more space, while traditional bricks and mortar retailers are pivoting more towards omnichannel strategies. With more online infrastructure in place, and with the ongoing shift to online retail likely to be a permanent feature in the new retail landscape, there will be a continuation of e-commerce and 3PL leasing demand.

A strong supply cycle will add to the growing investable universe in the region, providing more investable stock across many geographies. The total new completions figure is expected to reach a record 24.2 million sqm this year, up from the 17.0 million sqm in 2021. New supply will help meet growing demand for prime stock, both from occupiers and investors. Values are expected to rise further, with robust growth expected across many geographies. Short-term yield compression will continue in some markets, but at a much more modest pace than what has been recorded in recent years.

 

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