Although infrastructure investors continue to expand into data centres, institutional investors have been growing their logistics portfolio more broadly beyond this popular asset class subset, Florence Chong writes
Global logistics giants, such as the Goodman Group and its US counterpart, Prologis, are increasingly expanding into data centres, in some instances repurposing existing logistics facilities in metropolitan locations to capitalise on the AI-driven surge in demand.
Each of these groups have ambitious plans to scale up their data centre business. The Goodman Group plans to build, own and operate up to $80 billion worth of data centres in key markets around the world in coming years. The Sydney-based Goodman Group expects data centres to account for more than half of its global workbook over the course of this year.
The strategy adopted by Goodman and its competitors reflects the evolving dynamics of the market. However, this shift does not imply that they are turning away from warehouses and fulfilment centres.
On the contrary.
These facilities remain, and will continue to be, the mainstay of their operation.
Logistics Continues to be a Highly Desirable Asset Class
Recently, Aware Super unveiled plans to further ramp up its investment in a huge logistics development in Melbourne’s North. Today, the project, the Melbourne Intermodal and Industrial Exchange (MIIX) precinct, represents a $1.6-billion investment. Through its real estate platform Aware Super bought a 99-hectare industrial estate in Somerton in Melbourne’s north for $600 million in 2024.
The asset is already the flagship investment in the super fund’s logistics portfolio, which accounts for around 30 per cent of its property portfolio, which stands at around $11 billion today.
Equally committed is Rest Super, which last May partnered with Barings to buy a portfolio of 12 logistics assets in Australia from Goodman Group for around $780 million. It was their second acquisition, coming after a warehouse purchase from Charter Hall Group for $96.1 million. These acquisitions were enough to catapult the asset under management to close to $1 billion – their target for the vehicle.
Commenting on what was one of the largest property transactions last year, Andrew Lill, former Chief Investment Officer of Rest, said after investing successfully in the US industrial property sector and committing to a venture targeting the UK and Europe, it was time to lift the super fund’s presence in the Australian market. Lill noted that demand for industrial property continued to be strong.
UniSuper has also been increasing its exposure in logistics, via acquisitions of both stabilised income producing assets and greenfield projects.
In February 2024, UniSuper acquired a prime greenfield site in Deer Park, Melbourne, for $260 million. This site is earmarked for a prime 340,00 sqm industrial and logistics estate.
Within weeks, UniSuper together with ISPT purchased a 280—hectare development site, Burrah Park, immediately adjacent to the new Western Sydney Airport. Burrah Park will be developed in stages to initially create more than 400,000 square metres of commercial space by the end of this decade. On completion the first stage will have an estimated value of $3.9 billion.
These transactions form part of a UniSuper’s long held strategy to grow its unlisted property portfolio, which already includes $8.5 billion in assets.
Competition From PE and Overseas Pension Funds
However, super capital is facing stiff competition from foreign private equity firms and pension funds, which are actively hunting for quality assets. These offshore investors have already committed hundreds of millions of dollars to logistics funds, established by Australian companies.
Their interest remains strong despite research indicating the chronic undersupply is largely being met and demand is beginning to soften. The days of rental growing by up to 40 per cent are probably over. While rents are expected to continue to rise – driven by location-specific demand – the pace of growth is likely to moderate.
In April, Morgan Stanley Real Estate Investing (MSREI) established a $600-million platform with Fraser Industrial Property. MSREI is an equal partner in the platform, known as the Frasers Prime Logistics Venture, which holds a portfolio of eight major industrial assets located across Sydney and Melbourne.
MSREI first entered the Australian logistics market in 2017 through the Mirvac Industrial Logistics Partnership (MILP).
“MILP is one of our older third-party vehicles, and it is still going,” a Mirvac spokesperson says. The fund is smaller now. The partnership divested three industrial assets in 2019. The partnership is currently a 50 per cent ownership in one asset – Calibre at Eastern Creek, Sydney.
In 2021, MSREI forged another joint venture, this time with Lendlease to purchase eight industrial assets.
KKR and M&G Real Estate formed separate platforms with Stockland in February this year and together, they have committed about $800 million to invest in logistics.
Through its M&G Asia Property Fund, M&G bought a 50 per cent stake in the Ingleburn Logistics Park in south-west Sydney, the initial asset has a gross value of about $415 million. M&G has an existing investment in a 50 per cent interest in the Dexus Industrial Trust Australia.
Under Chief Executive Officer Tarun Gupta, Stockland is going down the well-trodden path of capital partnerships. KKR has a 70 per cent interest in the Stockland Logistics Partnership Trust, an open-ended core plus partnership.
The KKR-Stockland trust is seeded with three Sydney assets with an initial value of $388 million. This investment deepens KKR’s presence in the Australian logistics sector. It previously participated in a joint venture with the UAE’s sovereign wealth fund, Mubadala, and Logos before the latter became part of the pan-Asian logistics group, ESR.
KKR & Brookfield Partner with Boutique Logistics Fund
KKR has also played a key role when it backed a logistics platform established by boutique fund manager, Centennial. Adrian Taylor, Joint Managing Director of Centennial tells [I3] Insights the partnership with KKR now owns more than $300 million in assets. Some assets will be sold towards the end of the fund life.
Before KKR came into the picture, Centennial already had a partnership, known as the Enhanced Value Partnership, with Brookfield, which provided the capital to the $700 million fund. The vehicle owns several industrial and logistics properties, including sites in Sydney and Brisbane. Taylor says: “We are still acquiring and building out the portfolio.”
Separately, Brookfield runs its own industrial portfolio. Late last year, it sold what is known as Connect Central Sydney for $300 million to Gateway Urban Logistics Partnership (GULP), a fund managed by Gateway Capital Partners. Ruban Kaneshamoorthy, Brookfield, co-head of Australia real estate, says logistics continues to be a cornerstone of the group’s Australian real estate portfolio, and it remains focused on doubling the size of its exposure during the next 12 months. Brookfield is working through a strong pipeline of opportunities.
The cornerstone investors in GULP are Ontario Teachers’ Pension Plan and an unnamed Asian sovereign wealth fund. Stuart Dawes, Founder and Chief Executive Officer of Gateway Capital says the fund is working on building out the fund’s portfolio. The strategy is to turn it into a billion-dollar-plus vehicle.
Australian managers say there is a healthy queue of foreign investors keen to get into the resilient Australian logistics market. Apart from Japan and to a lesser extent South Korea, Australia offers the deepest and most liquid logistics market in Asia Pacific. Hence the flow of investments into the sector.
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.