Covid-19 validates ARA investment strategy

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Acquisition of logistics firm Logos allows asset manager to benefit from pandemic-induced e-commerce boom

22 Jul 2021 | Bayani S. Cruz

When Asia-Pacific’s largest real assets manager ARA Asset Management (ARA) began talks to acquire logistics firm Logos Group, it had no idea that Covid-19 was coming. But the deal proved a prescient move as it allowed ARA to benefit from the e-commerce boom that resulted from the pandemic.

The health crisis also validated ARA’s strategy of investing in neighbourhood shopping malls with strong grocery anchor tenants, as was the case with Suntec Place Sanlin in Shanghai.

ARA’s acquisition of Logos, announced at the height of the pandemic in March 2020, was very timely in terms of expanding its diversified real estate portfolio, a large chunk of which comprises commercial office, retail and now logistics and credit.

The diversification into logistics allowed ARA to withstand the challenges posed by lockdowns and other Covid-related restrictions, which adversely affected traffic in malls and other commercial properties.

“Going into Covid we saw continued e-commerce penetration, people were gravitating online, traditional retail was impacted as a result but it really depends on the type of retail. With respect to retail, for our value-add strategy, we’re focused on neighbourhood retail given its resiliency and despite e-commerce online platforms, neighbourhood retail has shown its ability to co-exist,” Jae Choi, head of Capital Markets at ARA Private Funds (APAC Real Estate), tells The Asset in an interview.

“In addition, given that we’ve gone into the logistics sector in a big way through Logos, we’ve seen pre-existing trends accelerated by Covid-19. In the post-Covid-19 world we will usher in a future we were likely already on track to realize but 10 years ahead of where we would have been on a normal trend. With Logos, we continue to be active in the core developed markets in Asia, and also expanded our footprint in the emerging markets.”

Suntec Place Sanlin Mall is anchored with two grocery tenants and is located in a dense residential catchment area in an affluent district of Shanghai. It caters to around 40,000 residents within a three-kilometre radius and is the only institutional-grade retail within a five-kilometre radius.

“Even during Covid-19, we were signing up new leases at higher rentals and executing positive rental reversions. So despite Covid-19, the neighbourhood mall investment thesis was validated. Footfall and sales volumes came down because of the lockdowns but the grocery anchor tenants kept things alive. As we came out of the lockdown in China we saw rapid pick-up in footfall traffic and sales volumes come back in a kind of like slingshot way,” Choi says.

China retail sales plummeted from about 8% in December 2019 to as low as negative 20% in January and February 2020 before rising gradually to -1.1% in July 2020. It remained stable at the 4-5% level from October to December 2020 but skyrocketed to 34% in January to March 2021. It dipped to 17.7% in April and remained stable at 12% in May and June 2021, according to Trading Economics.

In May 2020, Singapore saw retail sales fall by a record 52.1% year-on-year, the steepest since 1986, and Hong Kong recorded a sharp 13.2% drop in December from a year ago. Hong Kong retail sales have since recovered, increasing by 30% from February to March 2021, while Singapore retail sales hit a record 80% year-on-year surge in May 2021.

Although logistics was already a high-growth area even before the pandemic, the rise of digital commerce has resulted in greater demand for logistics services, infrastructure, and investment post-pandemic, according to the “Freight and Logistics Market 2021” report.