Overall real estate investment volumes reached USD 27 billion in 1Q23, down 30% y-o-y. Most sectors experienced a sharp contraction as compared to the previous year, weighed down by higher interest rate expectations and re-pricing efforts.

The Logistics & Industrial (L&I) sector is not immune to these headwinds, with 1Q23 volumes falling 25% y-o-y in 1Q23. However, the sector is still a relative bright spot for many investors, particularly across the region’s tier-1 cities. Fundraising activity continues across various platforms and this should spur investment over the coming months. What may drive more activity are institutional investors selling well-bought assets to help with balance sheet reconfiguration. There has been evidence of this in Australia, and this may also start to occur in markets where there are rising pressures on the capital cost front.

Figure 1: Logistics and industrial transaction volumes

Source: JLL, 1Q23

The L&I sector remains one of the most attractive real estate sectors for many groups, commanding higher cash-on-cash yields than office assets in most geographies. Moreover, positive carry, where returns from holding an asset exceed its financing cost, can still be achieved in several markets, including Tokyo and Singapore. The longer-term fundamentals also remain intact, underpinned by the growth in e-commerce.

Being the world’s largest e-commerce market, Asia Pacific accounts for more than half of global market share. And with e-commerce penetration rates still relatively low across many geographies – Japan and Southeast Asia, for example – more growth is expected in the future. Online retail sales as a proportion of total retail sales (online retail penetration) are steadily increasing across almost all global markets. Globally, the e-commerce penetration rate grew from 14% before the pandemic in 2019 to 20% now. By 2026, this figure is forecast to rise to 24%, meaning that e-commerce sales will make up close to a quarter of total global retail sales within the next three years¹. This growth will be supported by improving supply chain networks and technological advancements, which are positive for L&I real estate.

Nevertheless, a key hurdle to more transactional activity is the gap between buyer and vendor expectations. Aside from Australia, New Zealand and South Korea, there’s been limited evidence for significant recalibration in asset values. This has led to widening vendor and buyer expectations. At the end of 2021, most bids were between 1-10% higher than the asking price, and a quarter of all bids were 10% or higher than asking. This trend reversed in 1Q23, with more than 60% of bids now below asking. While these bid metrics are for all sectors, they also reflect L&I trends. So while the market remains relatively attractive for many groups, investment activity will likely stay depressed as we enter the second half of 2023.

By Peter Guevarra, Director, Regional Research – JLL

^{1. eMarketer, Statista, July 2022; Refers to e-commerce as percentage of total retail sales worldwide. E-commerce figures can vary widely depending on source and methodology.}