_Asia-Pacific's Logistics Sector: Underlying Drivers Support Continued Investment Opportunities

Asia-Pacific's Logistics Sector: Underlying Drivers Support Continued Investment Opportunities

Following a significant surge in demand for logistics spaces driven by the pandemic in the last two years, there is an observable trend toward a gradual return to normalcy. The need for logistics space, mainly driven by e-commerce companies, has shown signs of subsiding amidst global economic challenges. A combination of heightened inflation and a more cautious approach from businesses anticipating an impending economic slowdown has led to a tapering of consumption, thus impacting the demand.

The rapid rise in the cost of funds has now caught up with the yield compression observed during the pandemic. With yields estimated to have expanded by 30-40 bps in 2023, the recalibration remains insignificant. As a result, the sector is garnering increasing concerns about being overvalued. With buyers and sellers locked in a stalemate on price expectations, first-half investment volumes shrank over a third in 2023 compared with the same period last year.

With infrastructure investments a key driver of the region's economic development, the growth story for Asia-Pacific logistics is far from over. Although the surge in e-commerce during the pandemic is over, its adoption is unlikely to reverse. This growth has now entered a new phase. Across the subcontinent, more people are buying a more comprehensive array of products online across more diversified channels, shifting the region's supply chains to accommodate this expanded range of fulfillment requirements.

New logistics capabilities will likely be required, and incumbent logistical players and new entrants who possess them will reap the most significant value from these shifts.

The APAC logistics industry is becoming more critical in the region, from the surge in e-commerce to the need for faster and more efficient transportation.

The question arises: how will this growth seen since the pandemic evolve?

Resilient Occupier Marker

Like all industries, the logistics sector must evolve and effectively respond to the changing landscape after the pandemic. Overall, logistics real estate in APAC has continued to defy economic headwinds, supported by resilient demand from e-commerce, 3PL players, and manufacturers. The delivery of new supply continues to remain short of demand levels, with strong pre-commitments observed in several markets. To address the demand and rental challenges, numerous governments are establishing logistics precincts in nearby cities and provinces. However, achieving a comparable scale and quality to prime areas will take a few more years, thereby sustaining the rent pressure.

Cold Chain is Hot

The world realised the pivotal role played by cold chain logistics during the pandemic's peak, particularly with the requirement for vaccines to be stored below freezing point.

Cold chain logistics is the precise handling and transportation of temperature-sensitive commodities, including perishable foods and pharmaceuticals, in controlled environments. The main objective of cold chain logistics is to preserve the quality of these goods by strictly regulating their temperature. This process comprises three key components: refrigerated transportation, storage, and distribution.

While pharmaceuticals will continue to be a significant driver of cold healthcare logistics, the rising demand for fresh food, in parallel with the growth of the middle class and escalating consumption trends, will further amplify the necessity for comprehensive end-to-end cold chain solutions.

Rise of Shoppertainment

The accelerated adoption of e-commerce during the pandemic has set the stage for its next growth phase. With familiarity hot-housed during the pandemic, it is only natural that new marketing channels will evolve to drive digital engagement to a new level.

One of the marketing strategies that had slowly gained traction pre-pandemic, which ultimately took off when global lockdowns occurred, is 'Shoppertainment'. The convergence of entertainment and e-commerce elements has created an immersive and personalized consumer shopping experience. According to TikTok and Boston Consulting Group, e-commerce gross market value in the Asia-Pacific is estimated to reach US$3.5 trillion by 2025, up from US$2.6 trillion in 2022. Powering this 10% CAGR over three years are new forms of digital engagement, such as Shoppertainment, which is expected to be a US$1 trillion opportunity by 2025.

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