Asian logistics real estate has piqued the interest of many state-owned investors seeking opportunities for growth in pandemic-boosted e-commerce trends - and CPP Investments is a leader in allocating billions of dollars of capital into warehousing and distribution hubs across the region.
Global SWF data show that in 2020 SOI direct investment in Asian logistics real estate grew more than four-fold to US$4.3 billion. This year is set to break new records with total capital committed reaching US$3.5 billion in the first four months alone.
This week, CPP Investments ramped up its commitment to a South Korean logistics real estate joint venture with ESR Cayman, doubling the total capital to US$1 billion with the Canadian public pension fund contributing most of the increase.
The JV was established in August 2018 and consisted of 12 logistics facilities, of which six were sold to ESR Kendall Square’s Korean Logistics REIT in December 2020.
CPP Investments has also established other JVs with ESR. In June 2020, CPP Investments, ESR and Dutch pension manager APG established ESR-KS II with a US$1 billion capital commitment to industrial real estate in South Korea. It was seeded with a logistics facility project located near Incheon International Airport and is investing in institutional-grade warehouse assets in Seoul and Busan. ESR-KS II followed ESR-KS I, established in 2015 with the same partners and an initial capital of US$1 billion, which was later increased to US$1.2 billion. In both those JVs, CPP Investments has a 45% stake.
CPP Investments’ enthusiasm for South Korean logistics property is based on strong returns in recent years, alongside structural changes in the country’s consumption habits because of the pandemic’s disruption to markets.
SOI interest in exposure to logistics has accelerated with the onset of the Covid-19 pandemic, stimulated by consumption-oriented supply chains, urbanization, digitalization and demographic trends, particularly in Asia. Retail is being transformed by technology and the rise of the consumer class, supported by the growth of e-commerce and the expectation of faster turnaround times in delivery. Logistics real estate is central to the development of decentralized supply networks that are crucial to consumer market evolution – and state-owned investors are deploying billions of capital into the sector.
Jimmy Phua, Head of Asia Real Estate at CPP Investments, said, “Korea is already one of the most developed e-commerce markets in Asia and the pandemic has accelerated the growth in the past year, further fuelling the demand for quality logistics facilities. By expanding our successful joint venture with ESR, we are able to meet the fast-growing demand and strengthen our leadership position in the market, ultimately delivering long-term value for CPP contributors and beneficiaries.”
CPP Investments has forged other JVs in the Asian logistics space. In January, it agreed to invest US$200 million in its second Indonesian venture with LOGOS. The first, signed in 2017, includes four logistics and distribution hubs. At the same time, it forged a deal with LOGOS for logistics real estate in Singapore. In India, it has taken a different tack, signing an office venture with Indian property developer RMZ earlier this month. The deal targets a portfolio of US$1 billion of office property in Chennai and Hyderabad.