Asia logistics property: A boost in return potential?

6 min read 13 Mar 23

Asia Pacific e-commerce growth continues to outpace the rest of the world, supporting demand for more and modern logistics property in the region. Real estate price adjustments as well as emerging investment opportunities could further boost return potential.

Online penetration rates are likely to increase

E-commerce levels in Asia Pacific have risen substantially with a rising urban population1, increasing consumption, and the proliferation of digital payment platforms. Online shopping habits have been further accelerated by the pandemic. People that had never shopped online learned to do so, becoming familiar with smart phone use to book vaccination appointments, purchase groceries and prove their vaccination status to enter buildings. Digital food vouchers for vulnerable people in some countries also incentivised online shopping among older generations.

“New sub-markets could emerge as a result of Japan’s increasing appeal to global high-tech manufacturers, as they reassess their supply chains to improve resilience and diversification.” 

Now, people are used to shopping online, supporting increasing online penetration rates, particularly in historically under-penetrated markets such as Australia and Japan. Based on CBRE’s forecast, this is likely to reach 35% across Asia Pacific (APAC) by 2026, continuing to outpace the global average.

Additional logistics space is needed

With growing e-commerce comes the need for more warehouse and logistics property to store and distribute goods directly to households. These space requirements are typically three times greater than those associated with traditional retail.  

Currently, availability of logistics space remains tight, with vacancy rates below 5% in many APAC markets2. This is being compounded by the reconfiguration of supply chains as online retailers seek to provide faster delivery. 

Although supply is set to increase in the near term, this may barely satisfy leasing demand. We estimate additional logistics space of up to 130 million sqm3 is required in APAC between 2021 and 2026. This will be characterised by modern assets that can accommodate automation functions, in locations with good transport links and accessibility to urban areas, in order to meet increasing delivery demands.

Japan remains a key focus

Japan’s logistics market remains a key focus for core investors, underpinned by supply and demand dynamics as well as potential currency gains. With inflation and interest rates lower compared to other markets, real estate valuations look likely to remain relatively resilient. Selected hubs could also offer outsized income and growth potential, given e-commerce is rising from a low base.

Current logistics stock is largely characterised by older warehouses, with modern assets representing only 6% of total logistics stock in Japan. This presents attractive investment opportunities to create high specification, energy efficient buildings, especially in regional markets such as Osaka, Fukuoka and Nagoya, which appear relatively underdeveloped compared to Tokyo. 

New sub-markets could emerge as a result of Japan’s increasing appeal to global high-tech manufacturers, as they reassess their supply chains to improve resilience and diversification. Japan stands out given its deep ecosystem of component suppliers, dominance in the growing automotive industry, highly skilled workers and competitive costs.

To encourage investments, Japan’s government has created a JPY 600 billion ($4.6 billion) fund to finance up to half of the construction costs for new semiconductor plants. A further JPY47 billion has been set aside to support the production of components exclusively for particular products, including microcontrollers and power semiconductors4.

This is driving demand for logistics space in places like Fukuoka in Kyushu, for example, where microchip maker Taiwan Semiconductor Manufacturing Company plans to build its second semiconductor manufacturing plant in Japan5.

In addition, Japan could see a boost in logistics demand from new regulation in 2024 limiting the number of hours truck drivers can spend on the road. As Japan’s topography is spread out, this is likely to create interspersed demand for goods storage in less conventional logistics hubs along major routes.

Land scarcity in Japan’s mountainous terrain, in addition to rising debt and construction costs, requires a selective investment approach with a local partner, in our view. M&G has formed a strategic partnership with ESR Group to develop and acquire high quality, sustainable logistics assets such as the ESR Ichikawa Distribution Centre, which benefits from optimal supply routes into central Tokyo and reflects a CASBEE A rating for sustainability.

Opportunity could arise in markets facing repricing

Investors could benefit from asset repricing in markets such as Australia, in an environment of high inflation, interest rate rises and a pullback in bank lending. However, underlying market fundamentals remain compelling, driving sustained rental growth potential.

Logistics demand continues to benefit from steadily rising e-commerce penetration, supported by population growth and large investments in transport and infrastructure. Yet vacancy rates in Sydney and Melbourne are close to zero, while future supply is likely to remain constrained owing to financing challenges and construction delays. 

Return prospects look positive

APAC logistics property reflects a resilient long-term investment opportunity, in our view. Following substantial cap rate compression in recent years, price adjustments may offer investors improved return prospects, with the benefit of income growth potential. Different market maturities provides the ability to tap into a range of risk/return prospects, though local expertise and a focus on modern logistics space in strategic locations is key.

1 APAC’s urban population is expected to rise by 15% between 2020 and 2030. Source: Oxford Economics, as of January 2023.
2 CBRE, as at December 2022.
3 Estimates are based on the assumption that every USD$ 1 billion in e-commerce sales translate to a space requirement of 1 million sq ft or 92,903 sqm of logistics space.
4 The Asahi Shimbun, “Companies (and government) spending big to produce chips”, May 2022.
5 Japan Times, ”Top chip manufacturer TSMC considers second plant in Japan”, January 2023.


The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.