Logistics gaining ground as a source of higher returns
31 Aug 2012
Institutional investors including large pension funds and sovereign wealth funds are turning to logistics investments in the quest for better returns. It is a trend that will likely continue in the coming years, according to the Goodman Group.
Logistics offers higher yields than other real estate classes and are typically back by longer term leases by companies with strong financial covenants, which makes it an attractive investment option. Philip Pearce, Goodman's Managing Director for Greater China, told IPA, "We are seeing very strong demand globally from pension funds and sovereign funds and we do see this trend continuing as a large number of these funds are underweight real estate and logistics. Currently there are very few companies, maybe 2 or 3 that can offer the pension and sovereign access, which is benefiting our global platform."
Goodman and Canada Pension Plan Investment Board (CPPIB) have increased their equity allocation to Goodman China Logistics Holding (GCLH) by an additional $500m, with $400m contributed by CPPIB and $100m by Goodman.
The new equity commitment doubles the total equity allocated to GCLH to $1bn, reflecting the platform's increasing acquisition and development momentum. Mark Machin, President at CPPIB Asia Inc. said in a statement.
The office and logistics markets in China are still seeing strong demand from ender users and as a result rental growth, Pearce says. The slowdown in China seems to be having the largest impact on the residential real estate market which is the sector the government are seeking to cool off, he adds.
"The logistics sector is under supplied and is seeing strong demand from end users seeking to distribute to the domestic market. Our customers are telling us that they are not seeing a slowdown in demand from users supplying the domestics market, however the export business are being negatively impacted," Pearce says. "We are also seeing strong demand from importers of luxury goods and e-commerce companies."
GCLH was formed in 2009 to invest in high quality logistics properties in prime locations across mainland China. The company has invested in 12 logistics projects in six cities - Shanghai, Beijing, Tianjin, Kunshan, Chengdu and Suzhou. The portfolio has an occupancy rate of 100% with a strong tenant base.
Pearce adds: "Our major focus is to build our portfolio by developing it ourselves, this way we have full control over quality and know that we are providing our customers with the product they want and expect from Goodman. We are placing a large emphasis on ensuring the quality of our portfolio is to a high standard as we and our partners are very much looking to the long term.
"In terms of investment targets we have a land bank of over 4 million square metres of land that we intend to draw down on over the next couple of years which means we can develop in excess of 2 million square metres of brand new product for our customers."
Author: Richard Newell