The added-value role of industrial and logistics REITs in the Pacific Rim region
| Published date | 18 June 2020 |
| Date | 18 June 2020 |
| Pages | 597-616 |
| DOI | https://doi.org/10.1108/JPIF-09-2019-0129 |
| Author | Yu-Cheng Lin,Chyi Lin Lee,Graeme Newell |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
The added-value role of industrial
and logistics REITs in the Pacific
Rim region
Yu-Cheng Lin and Chyi Lin Lee
Faculty of Built Environment, University of New South Wales, Sydney, Australia, and
Graeme Newell
School of Business, Western Sydney University, Sydney, Australia
Abstract
Purpose–As significantlisted property investmentvehicles, industrial and logistics REITs (I&L REITs) have
recently enhanced their property portfolios, often replacing the traditional industrial properties with logistic
properties to gain strategic exposure to recent e-commerce trends. This paper aims to assess the investment
performance of I&L REITs by assessing the significance, risk-adjusted performance and portfolio
diversification benefits of I&L REITs in the Pacific Rim region from July 2011 to December 2018. The
strategic property investment implications for I&L REITs are also identified.
Design/methodology/approach –Monthly total returns from July 2011 to December 2018 were used to
analyse the risk-adjusted performance and portfolio diversificationbenefits for I&L REITs in the United States,
Japan, Australia and Singapore. An asset allocation diagram was employed to assess the strategic role of I&L
REITs in a mixed-asset portfolio in each case.
Findings –I&L REITs generally possessed superior average annual returns compared with the other sub-
sector REITs, stocks and bonds in the United States, Japan, Australia and Singapore between July 2011 and
December 2018, with desirable portfolio diversification benefits. Importantly, a more significant role for I&L
REITs was generally observed in the mixed-asset portfolio compared to the other sub-sector REITs in each of
these four markets across the broad portfolio risk spectrum. This reflects I&L REITs delivering enhanced
portfolio returns and offering portfolio diversification benefits in a mixed-asset portfolio in the United States,
Japan, Australia and Singapore.
Practical implications –Property investors, particularly property securities funds (PSFs) and income-
oriented investors, should consider including I&L REITs in their mixed-asset portfolios, as Pacific Rim–
based I&L REITs provided an attractive REIT investment sub-sector, co-existing alongside the other sub-
sector REITs and major asset classes in a mixed-asset portfolio in a Pacific Rim context, as well as being a
portfolio diversifier. These results confirm the added-value and strategic role of I&L REITs in a mixed-asset
portfolio, seeing I&L REITs as an effective investment pathway for I&L property exposure in the Pacific
Rim region.
Originality/value –This is the first study to assess the investment performance of I&L REITs in the Pacific
Rim region, evaluating their significance, risk-adjusted performance and portfolio diversification benefits, and
the role of I&L REITs in a mixed-asset portfolio in the United States, Japan, Australia and Singapore. More
importantly, this research is the first paper to provide empirical evidence on I&L REITs, which have often
transformed their traditional industrial property portfolios with increased levels of logistics property to gain
exposure to recent e-commerce trends. This research enables more informed and practical property investment
decision-making regarding I&L REITs and their added-value and strategic role in a mixed-asset portfolio, as
well as delivering effective I&L property exposure in the Pacific Rim region, with the added benefits of
liquidity, transparency and fiscal efficiency.
Keywords Pacific Rim, Industrial and logistics REITs, E-commerce, Risk-adjusted performance, Portfolio
diversification, Mixed-asset portfolio
Paper type Research paper
Introduction
Industrial and logistics REITs (I&L REITs) have become a significant listed property sector
in the international property investment space. The growth of I&L REITs can be largely
attributed to the g rowth in e-commerce and the evolution of omnichannel retail platforms
(Bohjalian, 2018;CBRE, 2018a;Knight Frank, 2018;World Bank, 2018;Chong, 2019a).
Industrial and
logistics REITs
in the Pacific
Rim region
597
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 30 September 2019
Revised 12 February 2020
25 April 2020
Accepted 7 May 2020
Journal of Property Investment &
Finance
Vol. 38 No. 6, 2020
pp. 597-616
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-09-2019-0129
Global e-commerce sales have rapidly grown from US$1.5 trillion in 2015 to US$4.1 trillion
in 2020, an increase of 2.7 times (KPMG, 2018). It is forecast to grow by 23.4% in the Asia–
Pacific (US$4.2 trillion in 2022) over the next five years, as well as 32% in the United States
(US$0.6 trillion in 2022) over the same period (CBRE, 2018c).
The growth of e-commerce has enabled e-retailers to employ an omnichannel retail
platform strategy and a dynamic supply chain ecosystem with high digital technologies,
including big data analytics, Internet of things (IoT), artificial intelligence (AI), artificial
reality (AR) and cloud computing (Knight Frank, 2018). These advances have seen consumers
demand faster and more frequent delivery, with the trend towards just-in-time (JIT)
procedures (CBRE, 2018d). To satisfy the last-mile delivery for online shoppers, increasing
I&L property space demands (e.g. third-party logistics (3PL), food and beverage, building
supplies, consumer goods) are expected (Terzi, 2011;World Bank, 2018;Xu et al., 2019).
Specifically, it was estimated that US$1bn in e-commerce transactions requires 1.25m square
feet of additional I&L property space demand in the United States. The level of growth in the
Asia–Pacific region is forecast to be even higher (CBRE, 2018b). In addition to e-commerce,
this strong I&L property demand has been supported by offshore manufacturing (Mangan
et al., 2008;McKinnon, 2009), shifting patterns of global distribution (Cidell, 2011), an
increasing cost of freight transport (Wagner, 2010;Christopher, 2016), an intensive use of
high digital technologies (Lasserre, 2004;Mathauer and Hofmann, 2019), moves towards
more alternate property sectors for diversification (IPF, 2015;UNGC, 2018), the growth of
infrastructure as an asset class (Peng and Newell, 2007) and the emergence of IT-related
infrastructure (e.g. data centres) (Marzuki and Newell, 2019).
To accommodate this increasing I&L property demand, logistics properties have taken on
increased levels in I&L REIT portfolios, replacing the traditional style of industrial properties
(Ascendas REIT, 2018). For example, Goodman has increased the logistics property exposure in
their property portfolio from 78% in 2007 to 94% in 2018, while it has downsized the traditional
industrial property allocation by 16% (Goodman, 2018). This sees I&L REITs as a suitable property
investment vehicle for international property investors seeking exposure to I&L properties.
Strong growth of I&L REITs has been evident in the Pacific Rim region. The total assets of
I&L REITs in this region have increased from US$34.8bn in July 2011 to US$124.5bn in
December 2018, an increase of 3.6 times over this period. Importantly, four of the top five I&L
REITs are in the Pacific Rim region, with the Pacific Rim region constituting 89.0% of the
total global market capitalisation of I&L REITs (see Table 1). Figure 1 shows the growth of
Markets Composite REITs I&L REITs
a
% I&L REITs
Market cap
United States 1,009.2 79.0 7.8
Japan 111.7 14.7 13.2
Australia 89.6 14.9 16.6
United Kingdom 67.4 14.6 21.7
Singapore 64.0 15.9 25.7
No. of REITs
United States 171 13 7.6
Japan 60 8 13.3
Australia 46 4 8.7
United Kingdom 57 8 14.0
Singapore 40 8 20.0
Note(s):
a
Categorised by the GICS
Source(s): Authors’compilation from NAREIT (2018b) and Thomson Reuters Eikon
Table 1.
Significance of the
major global I&L REIT
markets: December
2018 (US$ billion)
JPIF
38,6
598
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