Q&A: GLP's Yoshiyuki Chosa

Q: How has Japan logistics evolved since GLP entered the country?

A: Retailers and manufacturers used to own all the warehouses in Japan in previous decades, and that was fine because the economy was growing rapidly, and asset prices were going up. But after the first bubble burst in the early 1990s, that became a very expensive business model and there was pressure to streamline. Logistics real estate for lease was still new to Japan when we launched our first fund in 2002, but when e-commerce started booming around 2005, it became a huge market driver. If logistics operators wanted to attract big e-commerce companies, they needed to have facilities with modern features. At the same time, customized warehouses that catered to one product category were becoming obsolete because big-box retailers were starting to come in. For us, it was the right timing and the right place.

Q: How has GLP responded to changes in the market?

A: As delivery frequency has gotten higher, logistics operators that want to keep their supply chains tight and close are demanding light manufacturing and processing functions within their facilities to improve efficiency and inventory control for goods that get consumed quickly. The problem is that under the building codes in Japan, warehouses and factories have different permits, and it’s not easy to get both. But we see that model as the future of logistics, so we’ve developed a way to do it with a 300,000-square-meter integrated park in Greater Tokyo. It is the first logistics space with functions across manufacturing, processing, assembling, and last mile delivery. A follow-up project that will have even more functions and be twice as big is set to be built in 2019-2020.

Q: What’s the current scope of the opportunity set?

A: Modern logistics facilities make up only about 4% of the total market supply in Japan, and GLP has about 25% of that. Modern logistics in Japan is a $50-60 billion industry, but it could be 5-10 times that size because in the US, modern facilities are about 30-40% of the market. The local industry has been growing at 16% a year for the past six years and is expected to grow at a double-digit pace until 2025 because we have more players in the market and people are starting to understand the importance of modern logistics. It’s critical for warehouse users because logistics is becoming an increasingly important part of staying competitive.

Q: What challenges does Japan present logistics operators?

A: A lot of international supermarkets have struggled in Japan because local consumers are some of the pickiest in the world and many companies just cannot cater to their demands. With all the different brands and limited-edition labels people are asking for, making an exact delivery to someone’s home at a designated time takes exceptional logistics expertise, skills and network. It makes Japan an exciting market, but also very complicated. People in logistics who want to stay ahead of their peers need to find answers to make those things work. Real estate prices can be an issue but it’s something you can’t control. We’ve been able to get land at the right price, and Japan’s long-term strategy of keeping interest rates low provides us with a healthy yield between our borrowings and costs. Japan has been the best performing market for GLP globally, no matter what metric you take. 

Q: How is GLP differentiating itself in Japan?

A: We’re starting to shift from simply real estate into technology because we’re seeing it change the dynamics of everything – how people think, operate, and live. We want to create an entire ecosystem around technology and logistics through platforms like our Monoful business, which will be a one-stop shop for integrating supply chains upstream and downstream. Monoful is capable of growing as big or even bigger than GLP is now because logistics operators need these kinds of services. For example, we’ve invested in a fleet management company called Smart Drive that helps improve truck utilization rates, which is a huge problem in Japan due to labor shortages.

Q: How have demographics influenced the logistics space?

A: The labor shortage caused by the aging population has become a serious issue for warehouses because operators are fighting to hire good people. Our facilities look like hotels, with highly designed cafeterias, nurseries, daycare centers, shower booths, cafe-lounges, and hotel-style entrances. That’s because we need to help our customers hire people who could easily work somewhere else in an air-conditioned building. Automation is also in urgent demand, but not every logistics operator can pay for it. We can help there because GLP has the scale to source the technology and lease it out to multiple customers. That’s going to be especially important in cold storage because nobody wants to be working in a minus 30-degree warehouse.

Q: Where do you see technology taking GLP in the future?

A: We are going into anything that is in the ancillary of our core business, whether its automation, telematics, artificial intelligence, or robotics. When it comes to technology, the more data you collect, the more valuable your enterprise becomes, and that will help growth. Scalability is important in logistics because it’s a very network-oriented industry; the more facilities you manage, the more opportunities you can provide your customers. In the future, we may not even have to charge our customers floorspace rents anymore. Charging by throughput might be a more profitable for us and easier for our customers because they won’t have to worry about fixed rate rents which can sometimes be a risk for them. In 2-3 years, our facilities might be so much further upstream and downstream, we won’t even call them warehouses or distribution centers anymore. We’ll have to call them something else.

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• TMT