M&G Real Estate – part of M&G plc’s £76.7 billion (US$93.2 billion) private assets and alternatives division – and the ESR Group Limited Limited (“ESR” or together with its subsidiaries the “ESR Group”; SEHK Stock Code: 1821) announced today a long-term partnership on behalf of M&G Asia Property Fund, to develop a portfolio of logistics properties across Tokyo, Osaka and Nagoya. The partnership, for which M&G intends to deploy up to US$350 million in equity, is expected to expand the ESR-managed and M&G-invested logistics portfolio to over US$1 billion in gross asset value. 

Commenting on the partnership, Stuart Gibson, Co-founder and Co-CEO at ESR, said: “We are excited to solidify our partnership with this third transaction and the first development in Japan with M&G Real Estate Asia, an experienced global investor in the sector.”

Jing Dong (JD) Lai, CEO & CIO, Asia at M&G Real Estate, said: “The logistics sector is an important part of Japan’s economy and demand for state-of the art facilities remains robust. M&G Real Estate has been active in this space for many years and we are delighted to formalise our long standing relationship with ESR, an eminent logistics expert, leveraging on their capabilities to capitalise on strong market demand for high-quality assets in this space.”

This latest project builds on M&G’s expanding relationship with ESR, where both firms have previously teamed up on two other logistics centres in Ichikawa and Nagoya. The two centres, which both hold CASBEE A ratings, adopt an environmentally friendly approach and human centric concept from design to execution, with built in solar energy production and energy efficient equipment as well as childcare facilities and staff lounges.

Tapping into market opportunities with inaugural project - Nagoya Minami 2 Distribution Centre

As the inaugural project under this partnership, M&G will hold a majority interest in the development of a state-of-the-art logistics facility in Nagoya, Nagoya Minami 2 Distribution Centre, on behalf of its M&G Asia Property Fund, with ESR managing the facility upon completion. The project will commence construction in November 2022, with completion targeted for October 2023.

This project is strategically located in Minato-ku, an established industrial area approximately nine kilometres away from Nagoya’s central business district. Minato-ku is an urban ‘infill’ location targeted at tenants who provide ‘speed-to-market’ distribution into central Nagoya.

The 24,545 sqm (7,419 tsubo) site allows for the development of a 4-storey, multi-tenanted facility with a total net rentable area of 44,897 sqm (13,581 tsubo). It enjoys convenient accessibility to major roads including the Funami Interchange, Nagoya Expressway and Isewangan Expressway, and is walking distance to trains and established residential areas. 

The project taps into significant opportunities in this market. Greater Nagoya has the highest output of manufactured goods in Japan, underpinning a greater demand for logistics properties. With only 4.9% of the buildings less than 10 years old and constrained supply in the medium to long term, the demand for high quality modern logistics facilities is anticipated to remain high.

Gibson commented, “Our strategy to approach development on both a portfolio and long-term basis aims to hedge against inflation.  While our in-house research points to rental growth accelerating in prime locations, it is hard to predict exactly the transmission lag between current higher replacement costs and higher market rents. Hence, it is paramount to have long ownership periods for development strategies to allow for rents to catch up. Several of our ESR Japanese Investment management products have been designed over the past few years to protect investors against the prospect of inflation.”  

Richard van den Berg, manager of the M&G Asia Property Fund, said: “This partnership strengthens our commitment to Asia logistics, one of our central investment themes. Increasing our allocation to Japanese logistics will enable us to further diversify our portfolio and provide our investors with a resilient income stream. This build-to-core strategy additionally enhances the overall building age of the portfolio.”

Continued commitment to sustainable development

As part of ESR’s continued commitment to sustainable development alongside M&G’s goals to becoming a fully sustainable business and integrating ESG into its investments and engagement, the project will aim for a “CASBEE A” rating, incorporating relevant innovative design LED lighting and onsite energy generation potential will be maximised through the planned 1,500 kW of rooftop solar energy.