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The rise in consumer spending and rapid growth in e-commerce have encouraged Logos Property to start developing logistics space in Indonesia. The company is making its move with backing from two of the largest institutional investors in the world.
The entrance of Logos is likely to be the start of several similar announcements. Logistics operators view Indonesia as an untapped and huge market. Its 258 million people rank it behind only China, India and the United States in population globally, but its middle class is only now coming into its own.
The Canada Pension Plan Investment Board and Ivanhoe Cambridge have fronted up $400 million in funding for Indonesian development by Logos, which is also expanding in Singapore thanks to the partnership.
In Indonesia, warehouse operators can expect rental yields of 8% to 9%. There are yearly capital gains of around 6% on top of that, bringing total annual returns to around 15%.
Logos competitors Global Logistics Properties (GBTZY) from Singapore and the Goodman Group (GMGSF) from Australia both have extensive warehouse operations in China. With growth there slowing, Indonesia and its 5.1% expansion in gross domestic product present an attractive addition to the portfolio.
Indonesia is currently the world's eighth-biggest economy. But it will be the fourth-largest by GDP by the year 2050, to match its population, according to Pricewaterhouse Coopers. Indonesia, India and Vietnam will be the "star performers" between now and then, PwC predicts.
Ivanhoe Cambridge has also said it is looking at logistics investment in India, which like Indonesia has caught the eye of many an institutional real-estate investor in the last 12 months or so. India is currently the world's fastest-growing major economy, forecast by Oxford Economics to grow 7.2% this year. Indonesia's rate of growth is not far behind China's expected 6.3% economic advance for 2017.
As the world's largest archipelago, Indonesia and its 17,000+ islands present a logistical nightmare for manufacturers and transportation companies. Most companies focus largely on Java -- which, with its 141 million residents, is the world's most-populous island.
The Indonesian government and President Joko "Jokowi" Widodo are, though, committed to investment in the infrastructure that the country so desperately needs. The government on March 31 concluded a nine-month tax amnesty that resulted in the declaration of $365 billion in assets that will now enter the "proper" economy, and therefore the tax system, from the black market. That, and the removal of a fuel subsidy at the start of Jokowi's tenure, will help fund the infrastructure construction.
Indonesia certainly has its quirks. The Indonesian motorbike-hailing app Go-Jek is competing fiercely with its car counterpart, Uber, in a country where it's not unusual to grab a motorbike taxi to get around. Go-Jek and its peers may be the answer to the "last mile" delivery so crucial in logistics, a role filled by courier companies in developing countries such as China.