ESR is by far Asia-Pacific’s largest logistic investment platform. Florence Chong speaks to chairman Jeffrey Perlman


Just like the railroad companies of the 19th century which became the nerve centre of commerce, the present-day logistics companies have similarly evolved to serve e-commerce in the 21st century. “We see a parallel in the new economy to the development of those early railroads in the US,” says Jeffrey Perlman, chairman of the ESR group, which now manages more than US$140bn (€134bn) in assets. “If you look at who developed railroads in the US 150 years ago, those were the most successful companies and the wealthiest entrepreneurs, because they controlled all the commerce which flowed through those rails.

“We think the same is true in the new economy. Whoever controls that strategic footprint on the warehousing side will ultimately, in a way, control the flow of goods in e-commerce,” says Perlman, a 38-year-old American who is also head of real estate and Southeast Asia at Warburg Pincus.

Most e-commerce companies sell a lot of the same products but try to differentiate themselves with speed of delivery and customer service, he says. “We sit in the heart of the central nervous system of e-commerce companies.”

ESR is in a unique position, says Perlman, pointing to the acquisition last year of Singapore-based ARA Asset Management, which itself had previously acquired Asia-Pacific logistics specialist Logos.

Southeast Asia, a market yet to be penetrated by other global logistics players, has a growing middle class. “These economies will really benefit, and e-commerce is starting to take off as well. The pandemic has been a further accelerant of that. Southeast Asia is also benefitting from a shift of manufacturing facilities from China to Vietnam, Indonesia and neighbouring countries.”

The continuing growth of e-commerce will drive demand for logistics. “Number one, the penetration rate across Asia has a long way to go in terms of catching up to some other markets around the world,” Perlman says. A typical e-commerce company needs three times as much space as traditional retailers selling the same goods.

“Number two, the shift from just-in-time to just-in-case – and we continue to see that consistently from our customers with their own prioritisation. 

“Number three, governments are focused on onshoring key activities that are important from a national security perspective as a part of a broader deglobalisation trend or in areas where they may have been a bit exposed during the pandemic. Much of that is manufacturing-related and, again, that is going to need logistics and industrial space.”

He says: “We already have market-leading number one or two positions across each of the markets that represent over 95% of GDP in Asia-Pacific. For most of our peers, it will be quite a while before they will focus on areas like Southeast Asia.”

Logos is established in Indonesia and Singapore. Last year, ESR entered Vietnam, forming a joint venture with the Vietnamese development company BW Industrial, which is largest logistics and industrial player in the country and backed by ESR’s largest institutional shareholder, Warburg Pincus.

ESR was an early mover in Korea when it entered the market in 2014. “In seven-and-half years, we have built up AUM of more than US$10bn. It is now a significant business – dominant in size and scale in the market,” says Perlman.

Perlman emphasises that retail has evolved greatly over 50 years. It started with street shops, then department stores, moving to strip malls and then to large shopping malls. Logistics is still very much in “the early innings of the transformation of how we consume goods from the physical store to online”. 

Deglobalising supply chains

Perlman says that current global supply-chain disruptions have reinforced the trend towards deglobalisation, with governments starting to look inwards, and a policy emphasis on manufacturing onshore.

“In the early days of the pandemic, we saw a rapid change in the supply-chain philosophy from just-in-time to just-in-case,” he says. “Then, you start to think about the impact of geopolitical tensions, obviously Russia-Ukraine and the frictions between China and the US and other countries.

“What we are starting to see is that more countries are determining what their national security interests are, and part of that is around supply chains and a shift to onshore production. Countries want to make sure they can deliver on their key national priorities.

“That has obviously broader and wide-ranging consequences for the global economy, which has benefitted over many years from globalisation that has delivered peace and prosperity around the world.”

Perlman says that for some time now, countries have sought to diversify supply-chain sources and this has seen a gradual relocation of some manufacturing out of China into Southeast Asia. This trend has partly been accelerated by the lure of lower-cost workforce in markets like Vietnam. “From a real estate perspective, deglobalisation will raise demand for warehousing space within most countries,” he says. 

About onshore manufacturing, Perlman says: “A lot of this is very high-tech manufacturing which creates a bigger opportunity again in the high-tech arena. Whether it is semi-conductor chips as it relates to many countries, such as the US, the move to onshore development and manufacturing has started.

The populace within many of these markets is going to be very supportive because they have lived through this period when there has been an overreliance on certain countries and a lot of supply chain issues have emerged. For example, Europe was too reliant on Russia for energy.”

On where he sees the logistics sector heading in the medium term, Perlman says: “If you think about geopolitics, these issues probably are likely to continue into the future.” Issues such as US-China tensions are “not going to resolve themselves overnight”, he says. “As a result, more countries… are asking themselves, what are our priorities now and how can we control [their outcomes]?”

The world’s major logistics players have benefitted hugely from globalisation. A handful of warehouse developers have cornered the global market. “When a customer needs logistics space in multiple locations, whether in India, Australia or Japan, ESR Group can deliver. There are very few developers that can do that,” Perlman says. “The barriers to entry to build a national or a regional network have never been so high, and are getting higher every day, given the size, scale and sustainability requirements from our customers.”

While a lot of capital is chasing logistics, Perlman says people tend to get lost in the noise of how much interest there is versus the actual supply of assets. The handful of large-scale global developers can only build so much in a given year.

“The reality is that there is tremendous interest in this sector that should probably maintain and preserve a low cap rate for these assets. You also have good supply fundamentals that should lead to some real rent growth, so that should really support the industry. 

“And while investors may seek to rebalance part of their portfolios coming out of the pandemic, as most are under-allocated, to begin with, to new economy real estate – logistics and data centres – it is hard to envision that they are going to look to sell these assets anytime soon. So, if anything, again I think value should very much hold even in a rising-rate environment.”

Although, through its acquisition of ARA, ESR has businesses in the Europe and the US, Perlman says: “From an ESR perspective, the nexus of our business is Asia. That is where we have a core competitive advantages. Asia-Pacific is where we think we have a strong unique position. We are twice the size of any asset manager in Asia-Pacific.”

But Perlman does leave the door slightly ajar. “Obviously we want to make sure we can service our capital partners,” he says. “Because ESR services some of the largest sovereign and pension funds across Asia and the world, and some capital partners obviously look to ESR when they want to allocate outside Asia.”

Logistics: ‘Just in time’ to ‘just in case’