Investor Perspectives Podcast

As the shopping season ramps up, what does everybody want this year? Ultra-fast online deliveries, of course.

Consumer expectations for on-demand shopping are on the rise. And to fulfil those demands quickly, so are dark stores. These micro-warehouses filled with goods for online shoppers are developing fast in established markets like the U.S and Europe, and also spreading to new markets in Asia Pacific.

 “We’re about to see the largest disruption to retail and the supply chain that we have ever witnessed,” says Brittain Ladd, global strategy and supply chain consultant, referring to the high levels of automation feeding a consumer culture. “What we’re about to see through the rest of the 2020s is more changes in retail and business than we have seen in the prior 100 years.”

 The changes come amid a sustained boom in the logistics real estate sector. According to JLL’s Future of Global Logistics report, 74 percent of surveyed professionals expect demand to continue grow at pace over the next five years.

What do the latest developments with dark stores mean for the world of logistics and supply chains?

Listen to Ladd and Michael Ignatiadis, head of supply chain and logistics solutions for Asia Pacific at JLL, discuss how automation is reshaping dark stores, the companies already doing it well, and what it means for the future of industrial and retail real estate.

Automation isn’t just reshaping how goods travel from factories to front doors.

It’s also reshaping the logistics sector’s workforce. This is true of people on the warehouse floor working shoulder-to-shoulder with robots, but it goes all the way up to the c-suite, with increasingly needs for skills like data analytics and risks management.

While skills needed are a reflection of an increasingly tech-driven sector, at the end of the day one of the most important skills is very human: relationships.

“I think the biggest difference between the companies that will win, and those that will lose, will be people,” says Radu Palamariu, Global Head of Supply Chain & Logistics Practice at Alcott Global. “The same types of technologies will be available to everybody… but the ability of teams to act fast will make the difference.”

Listen to Palamariu and Michael Ignatiadis, head of supply chain and logistics solutions for Asia Pacific at JLL, discuss what skills have made, and broken, logistics businesses in these times of extreme disruption.

From the blockage of the Suez Canal to the pandemic, there have been plenty of reminders about the fragility of global commerce in the last year.

The events have been a wake-up call for manufacturers and logistics firms, which are trying to figure out how to address unpredictable disruptions to intertwined global supply chains.

“Right now resilience is emerging as a lot more important than cost,” says John Gattorna, a leading supply chain thought leader and author. “Although if you get it right, increased resilience shouldn’t necessarily cost more.”

The questions have also become increasingly important in commercial real estate, where the logistics-sector boom appears set to continue.

What does it take to be ready for periods of disruption, and what happens if you aren’t?

Listen to John and Michael Ignatiadis, head of supply chain and logistics solutions at JLL, discuss what companies are doing to prepare for disruption, what’s holding them back, how global firms are thinking local, and the shape of a modern logistics footprint.

The rising demand for fast, efficient deliveries over the past year has become tied up in the growing urgency around sustainability.

With growing awareness of the trade-off between fast deliveries and carbon emissions, what are companies, investors, governments and consumers doing about it?

Crucially for real estate, many of the decisions will come down to cost. According to a JLL recent survey of logistics experts, potential cost savings are a major driver behind green efforts, with 73% of respondents rating energy savings as the highest sustainability priority.

Listen to Alexis Bateman, the former Director of MIT’s Sustainable Supply Chains Lab, and Michael Ignatiadis, head of supply chain and logistics solutions at JLL, discuss whether consumers will ever change their behavior, the role green warehouses can play, and the metrics companies need to track their progress.

“Sustainability can't be a trend,” says Bateman, who has changed roles since recording this podcast. “We need to keep that pressure on, finding the right tools to actually achieve those commitments and really continuing this momentum.”

Asia Pacific investment volumes hit $35 billion between July and September, compared to $26.1 billion in previous three months of 2020, according to JLL.

It was China that took the bulk of the region’s investment, as the country’s economic recovery continues to outpace the rest of the world. In a quarter when most economies contracted, the world’s second-largest economy grew 4.9 percent.

Domestic investors remain the predominant source of capital, but larger cities like Beijing have been drawing foreign investors as well.

In this podcast, our host, Art Patnaude, has a dialogue with JLL’s Julian Zhang, Managing Director, North China, joining us from Beijing, to discuss the implications for Asia Pacific real estate investors.

The topic at hand – the performance of China’s real estate markets

“In the third quarter, 70 percent of the transactions in Beijing involved foreign investors. Almost half of the transactions done in the city so far this year have involved foreign investors, demonstrating the global appeal of this market,” he says. “Geopolitical issues and conflict doesn’t stop investor interest in key cities like Beijing. They're more focused on market fundamentals and the solid demand dynamics in this market will continue to attract more investors from offshore.

The fourth quarter is looking like it should maintain the increased momentum. Zhang observes, “We are starting to see more and more investors show up in Beijing. This is one of the hottest market in the near future for global investors.”

Shanghai and Beijing are the biggest commercial real estate markets in China, and among the largest globally.

Shanghai reached US$7.3 billion in foreign-direct property investment last year, the fourth-largest in the world, according to JLL. Beijing saw US$4 billion of inflows into real estate.

Their rise is in part tied to a decades-long path to greater transparency.

In this podcast, our host, Art Patnaude, has a dialogue with JLL’s Stuart Crow, CEO Capital Markets, Asia Pacific speaking to us from his home office in Singapore and Jim Yip, Head of Capital Markets, China, joining us from Shanghai, to discuss the implications for Asia Pacific real estate investors.

The topic at hand – the performance of China’s real estate markets

“China will probably be the largest real estate market in the world in the next 6 to 8 years. So transaction volumes are always going to be high and investors are attracted to the many aspects of China’s growth. The transparency of information around deals, around rents and indeed opportunities has improved. And with that investors have become a little bit more educated and very much focused on the broader demographic, urbanization and consumer trends” explains Stuart Crow. “China's homegrown technology giants themselves are becoming very, very large players globally and are very having a very big impact on the their homegrown office markets”

“The fundamental growth story of China is still very much intact. We have a very strong retail sales, GDP was depressed in first half year but is expected to rebound” says Jim Yip. Logistics, data centers and alternative asset classes such as cold storage and co-living are expected to attract increasing volumes of capital.

Whilst acknowledging that there are risks ahead and the need for continued improvements in transparency, Jim concludes with a positive outlook “I'm pretty confident about the market in the aftermath of this pandemic. The market will see a significant pick up towards the end of this year.”

Regional investment volumes in the first six months of 2020 are estimated to have fallen 32 percent from the year-earlier period, with second quarter activity down by 39% year-on-year accelerating from a 26% drop in the first quarter, according to JLL Asia Pacific Research. 

In this podcast, our host, Art Patnaude, has a dialogue with JLL’s Roddy Allan, Chief Research Officer, Asia Pacific, to discuss the implications for Asia Pacific real estate investors.

The topic at hand – newly released data on the performance of Asia Pacific real estate markets in first half of this year.

“The reality is that the decline in volumes was certainly not a surprise, given that the heightened level on uncertainty around COVID-19, and because ultimately people have been unable to get on a plane and to carry out due diligence.” explains Roddy. “It’s not that investor interest has waned at all. There has been a pause.”

Internationally connected hubs of Singapore and Hong Kong saw the most significant declines, with second quarter figures down 68 percent and 65 percent year-on-year, respectively. But China, further along in the cycle, saw a decline of only 15 percent. And Japan’s volumes fell just 20 percent, bolstered by recent transactions in the multi-family sector and strong domestic liquidity.

“There's a lot of pent up demand in the system. So I feel pretty positive in that if things do die down with the virus as we go into 2021, we really do expect to see volumes accelerate and pick up.”

While there were some relative bright spots in select areas, the market does remain unpredictable, and all sides will be watching closely as the second half unfolds.

Global investors are preparing to double down on Japanese real estate and deploy sizable chunks of the $40 billion of dry powder capital earmarked for Asia Pacific into the country.

In this podcast, our host, Art Patnaude, has a dialogue with JLL’s Stuart Crow, CEO Capital Markets, Asia Pacific speaking to us from his home office in Singapore and Kenichi Negishi, Head of Capital Markets, Japan, joining us from Tokyo.

The topic at hand - Why is Japan set to attract greater volumes of international capital.

“Japan will be one of the least impacted markets in Asia Pacific and will probably emerge as one of the more attractive investment destinations for cross-border capital in the second half of 2020,” says Stuart Crow. “Global investors have long desired greater exposure to Japan, and with a slight price correction, there will be greater opportunities.”

“Pricing has usually been the main challenge faced by investors as well as tight supply in Tokyo,” explains Kenichi Negishi. “When international investors look at Japan, they see a safe haven and a core investment market within global and regional strategies. They are also looking for stable income, and typically office is one of the sectors that provide a very stable cash flow, which becomes more attractive if there is a price adjustment.”

Diversification is a theme that we expect to continue. “We are anticipating global investors to increase allocations to Japan and accelerate plans to look beyond Tokyo into markets like Osaka and Fukuoka,” says Negishi. “Investors view Japan through a more diverse lens when looking into increased exposure, which can also be seen through the growing attraction to emerging asset classes like data centres, logistics, and multifamily”.

In the short term, the impact of COVID-19 on Japan’s real estate market is expected to be less than the global financial crisis. And despite expectations that transaction volumes for the whole 2020 will register a 25% decrease from the previous year, global investor sentiment towards Japanese real estate is already showing signs of a meaningful shift.

Corporate finance heads are increasingly turning to their existing real estate as a source of liquidity in the uncertain economic environment.

Sale-and-leaseback deals – where companies sell their real estate, then lease it back from the new owner – have been on the rise in recent years. But there has been a greater focus on them in recent months as the global pandemic sent companies hunting for strategies that boost equity.

In this podcast, our host, Art Patnaude, has a dialogue with JLL’s Regina Lim, Head of Capital Markets Research, Asia Pacific, speaking to us from her home office in Singapore.

The topic at hand - Why is COVID-19 accelerating corporate sale-and-leaseback activity.

In the last four years, there has been a 50 percent increase in sale and leaseback deals in Asia Pacific, with growth three times faster than the overall investment volumes in the region, according to JLL data. There was US$12 billion of such deals in 2019 alone. 

Regina explains why this rise is set to continue, “The economic uncertainty is forcing businesses to think about flexibility and agility. The benefits of unlocking liquidity through sale and leasebacks is even more obvious. Owners can use the extra capital to pay down debt, reduce interest expense, or reinvest to drive the next stage of growth.”

“COVID-19 has been like a reset, forcing a lot of companies to re-examine the way they deploy their capital to get the best return,” confirms Regina.

Large supermarket and retail chains with industrial property on their books are top among those considering sale and leaseback strategies as they reassess strategies.

“Traditionally Asian businesses have preferred to own a property over leasing it but this is gradually changing as asset prices continue to increase," says Regina. “We're seeing a lot more activity from niche players like family offices and private equity funds who are under invested in Asia Pacific real estate and value stable income generating assets.“

That trend will continue through and beyond COVID-19.

Real estate investment markets are showing the first signs of resumption, following a global pause as investors assessed the full impact of the COVID-19. As economic green shoots appear in some markets, capital deployment is top-of-mind with investors eager to release approximately $40 billion of dry powder capital into the region.

In this podcast, our host, Art Patnaude, has a dialogue with JLL’s Tim Graham, Head of Capital Strategies, Asia Pacific, speaking to us from his home office in Singapore.

The topic at hand - How is COVID-19 influencing real estate investment strategies in Asia Pacific.

Tim explains investor sentiment, “Conversations have shifted away from the initial understanding of what the impact has been to their portfolios on COVID-19, to spotting new opportunities and new deals."

Investors have been quick to see defensive and diversification advantages in both logistics and data centres. Over the past three months, approximately $6 billion in capital has been committed to these strategies – and more deployment is expected.

“COVID-19 has certainly accelerated existing megatrends, which will drive greater diversification at a sector and country level,” says Tim. “As a result, we expect many investors will increase weightings in logistics and data centres within their portfolios.”

Despite many divergent views on the future of the office sector globally, Tim notes the Asia Pacific office market will continue to hold widespread appeal for investors. In part due to the strength and resilience of the region’s growing cities.