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Rise of Sheds

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A decade ago, warehouse logistics assets were arguably the least sexy and unloved among the real estate community. Fast forward to an era of e-Commerce and the tale is very different. Indeed, investment in ‘sheds’, a crude term, perhaps especially given the rise of modern, sophisticated, technology-driven facilities that are highly-desired today, has become a core asset, central to the shopping list of most institutional Fund managers. Institutionalised and first on the team-sheet, so-to-speak. Stable, easy to maintain and consisting of long-term tenants, these are reliable income-producing assets.

This has not only been a meteoric re-positioning of the asset in the hearts and wallets of investors but also one that has grown significantly over the past decade, measured in part by the number of logistics REITs and Funds that have been established, particularly in Asia.

Why? A growing middle-class and rising wealth across the region with more disposable income and an acceleration of demand is spurring e-Commerce. Given the continued growth of e-Commerce platforms, as traditional retail continues to evolve, some estimates cite logistic volumes as doubling in the next 5 years alone. This places significant stress upon warehouse storage and distribution capability. Corporates, as well as their 3PL/4PL partners, require robust supply chain / route to market plans and typically with a network across multiple geographies and increasingly with specialist cold-storage and technology driven solutions. Asia has a number of populous countries and growing GDP, a hotbed for e-Commerce activity and also, typically, markets that contain a high proportion of older, legacy warehouse solutions that are sub-optimal solutions.

As such, despite the growth of built-to-suite and speculatively built assets, their continues to be significant under-supply and over-demand to drive growth, and value, for years to come. In Asia, most growth is expected in Indonesia, Vietnam and Thailand. Indonesia has a self-contained domestic economy supported by a population in excess of 200m population whereas Vietnam benefits from its accessibility to companies seeking a contingency outside of China (potential trade war with the US, capital controls, rising costs of land and labour).

The rise of the sheds market will probably not abate for some time despite an increase in new market entrants. Not only are they attractive investments but the companies investing, developing and managing the assets have become sexy employers too. Most have capital, a pipeline of developments, sub-regional or regional plans for expansion whilst many have additional ambitions to continue pivoting their business model to embrace additional, complementary assets, such as Data Centres, the latter a strong, upward-trending sector in its own right!