China's logistics, data centres get top billing as Goldman, Actis real estate funds join record rush into market

property, huge increase in investor interest

Foreign funds are making a beeline for logistics and data-centre assets in mainland China as the coronavirus pandemic burnishes their appeal as a key property in the booming e-commerce industry.

Goldman Sachs Asset Management and New Ease, a new economy infrastructure investor, earlier this month jointly bought two collections of logistics real estate projects in gateway cities throughout China in a transaction worth US$488 million.

China logistics transactions reached a record of about US$7 billion in 2020, with 30 per cent being cross-border deals, according to DWS and Real Capital Analytics. Fundraising by China-focused logistics funds at US$7 billion in 2020, the most since at least 2011.

“There has certainly been a huge increase in investor interest in both logistics and data centres over the last three years, and especially since Covid-19,” said Thomas Liu, head of Greater China and North Asia real estate at Actis. “These have proven to be resilient sectors despite the overall slowdown” in the global economy.

property, huge increase in investor interest

Employees work at an airmail sorting and distribution centre of China Post in Guangzhou. Photo: Xinhua

More global investors are likely to enter the fray as the property market matures and delivers stable yield and returns, he added.

London-based Actis, with US$1 billion dedicated to Asian real estate, invests in the real estate sector across China, India, South Korea and Southeast Asia. It has 12 ongoing projects in the region, including five logistics warehouses and a data centre in China.

China accounts for over half of all global e-commerce sales, making it the single-largest market globally. With rising consumption, an expanding middle-income urban population and strong e-commerce adoption rate, demand for prime logistics is expected to accelerate.

The local economy grew 12.7 per cent in the first half from a year earlier, when gross domestic product shrank 1.6 per cent at the outset of the Covid-19 pandemic. The International Monetary Fund forecasts growth to quicken to 8.4 per cent this year versus 2.3 per cent in 2020.

Over the next few years, China’s logistics sector should present attractive returns relative to the domestic office and retail sectors, as well as other logistics markets in Asia-Pacific, according to asset manager DWS Group.

There has been a noticeable upswing in participation from cross-border investors including asset managers, private equity funds, sovereign wealth funds as well as foreign Reits, the German asset manager said in a statement.

James Macdonald, head of research in China at Savills, echoed the view that “investors are instead focusing on logistics and niche sectors” when “supply pipelines loom large in the commercial markets”.

Liu of Actis noted that while data centres are coveted by investors, many are finding it challenging to overcome the higher barrier to entry and execution risks.

Supply of data centres is constrained due to much higher risks when it comes to infrastructure needs and execution capabilities. For example, power and land are absolute necessities for data centres and they are not accessible to every investor or developer.

Despite bullish demand for data centres, rents have not advanced meaningfully or even declined in some cases, Liu said. That is partly because of the strong bargaining power of the few global and Chinese hyperscale users, he added.

Meanwhile, rents for logistics facilities have held up or increased slightly depending on the local supply-and-demand dynamics, he said. Prices have increased and yield compressed, Liu added, saying the trends will continue over the next six to 12 months.

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