Bulking Up on New-Economy Assets: Data Centers and Logistics Facilities in Vogue with Asia’s Investors

Global growth in e-commerce spurred by the coronavirus pandemic is boosting investor interest in a “new economy” asset class dominated by data centers and logistics facilities, speakers said in early September at a session during the ULI Asia Pacific REImagine conference.

He Jihong, chief corporate strategy officer at CapitaLand Group and chief executive officer of its data center business, said the Singapore-based real estate development and management company is “quite determined to pivot” toward bulking up ownership of new-economy assets. CapitaLand’s global portfolio, worth US$98.5 billion as of June 30, includes four data centers in Asia as well as 235 logistics centers, industrial spaces, and business parks in seven countries.

Sarah Cooper, Hong Kong–based managing director and global head of real estate equity sales at investment bank BofA Securities, said real estate investors generally are “allergic” to retail assets now and are more keen on logistics facilities and data centers.

In Asia, logistics facilities are fairly common, but data centers represent a relatively new asset class that this year has entered the “limelight,” said Christina Gaw, managing principal and head of capital markets at Gaw Capital Partners, a private equity real estate firm based in Hong Kong. The data center sector enjoys plenty of room to grow in Asia from an investor and tenant standpoint, she said.

In December, Gaw Capital Partners announced the close of a US$2.2 billion Asia Pacific fund with investment targets that include data centers. On top of the capital in the fund, the firm secured a co-investment commitment of up to US$800 million. In early 2020, Gaw Capital Partners had US$25.7 billion in assets under management.

The firm is among a growing number of investors eyeing data centers. A survey by Los Angeles–based real estate services giant CBRE found that 30 percent of Asia Pacific investors are considering buying data centers this year, up from 18 percent in 2019. Data centers accounted for only 1.5 percent of Asia Pacific industrial real estate investments between 2015 and 2019, according to CBRE.

“Despite rising investor interest in Asia Pacific data centers, direct investment remains limited due to a lack of investable stock and relatively tight regulatory restrictions,” CBRE said in a recent report about the global data center market.

The logistics space in the Asia Pacific region is also ripe for expansion, according to San Francisco–based Prologis, which owns and operates logistics facilities in 19 countries, including China, Japan, and Singapore. The United States remains the world’s most advanced logistics market, Prologis said, while the sector is still emerging in places like China. The global stock of logistics facilities has generally lagged that in the United States, the company said.

“In the coming years, logistics real estate clusters in vital markets around the world are expected to expand to meet continually rising demand,” Prologis said.

CBRE’s analysis predicts occupiers of Asia Pacific logistics centers will be “cautiously optimistic” in 2020, though competition for prime spaces remains intense.

“Tenants will continue to place a strong emphasis on location, which will remain key to minimizing delivery times and transportation costs,” CBRE said in a recent report. “Modern logistics facilities with good connectivity to major transportation infrastructure and near large customer bases will remain popular.”

CapitaLand executive He said that as demand for logistics space climbs, developers and tenants are focusing on bigger floor plates, higher ceilings, and other features that better accommodate e-commerce operations. Older logistics assets, no matter how inexpensive they are, are becoming harder to rent, He said.

Expansion of e-commerce and cloud computing will benefit the logistics and data center markets for decades to come, He said, as the world copes with long-term social, economic, and structural changes.

For now, the logistics and data center sectors, along with cold storage, are the favorites of real estate investors, Henry Chin, global head of CBRE’s investor thought leadership and Asia Pacific head of research, told CNBC earlier this year.

Recordings from ULI Asia Pacific REImagine will be available in Knowledge Finder soon.