Rising Demand of Vietnam's Logistics Real Estate

According to Savills Vietnam, Vietnam's logistics industry is experiencing significant growth due to the development of the national economy, manufacturing, and e-commerce sectors.
October 06, 2023 | 16:06
Rising Demand of Vietnam's Logistics Real Estate
Real estate for logistics is still an area sought for investment in Vietnam. Photo: VTV

Growing demand for logistics real estate

Experts say that in Vietnam, the logistics industry developed strongly thanks to the growth of e-commerce. This is one of the factors causing demand for logistics real estate to increase sharply.

According to the Vietnam E-Commerce Report 2023 published by the Vietnam E-commerce and Digital Economy Agency, retail e-commerce revenue in Vietnam in 2022 reached US$16.4 billion, accounting for 7.5% of total retail sales of consumer goods and services in the country.

It is estimated that Vietnam's e-commerce revenue in 2023 will reach US$20.5 billion, accounting for about 8% of the total retail sales of goods and consumer service revenue in the country. Facing strong developments, logistics in Vietnam is still concentrated mostly in large markets.

This is an opportunity for investors in this segment to provide supply to meet the growing needs of logistics.

According to Thomas Rooney, senior manager of Industrial Services at Savills Vietnam (Hanoi), the current logistics market has not yet fully utilized its potential. Supply has not met demand, requiring investors to flexibly introduce new models and optimize available warehouse space.

Regarding the demand for logistics, Thomas said, the e-commerce industry needs a large warehouse area to store items as well as systems to support picking and packaging activities. International manufacturers with high-value-added products also expect to have warehouse space to store goods after production.

However, the supply of warehouses in the Vietnamese market, especially in the North, is still not much. Therefore, investors can consider high-rise warehouses or smart ports.

Attraction of Vietnam's industrial market

"Vietnam is becoming one of the world's prominent manufacturing centers with an increasingly improved investment environment and major trade agreements being signed.

This created more attraction of Vietnam's industrial market for the investment portfolios of large and reputable international enterprises. Investment in infrastructure and logistics systems will also strengthen the supply chain for manufacturing businesses," said Thomas Rooney.

Rising Demand of Vietnam's Logistics Real Estate
Photo: VTV

Along with that, the positive outlook of the e-commerce industry and the increase in demand for fast delivery promise to be the premise for the logistics market to develop efficient operating models.

Savills' report also shows that investors still maintain optimistic expectations for the logistics market in Asia-Pacific.

Specifically, while total investment capital in the logistics segment in the second quarter of 2023 in the entire European market decreased by 50% compared to the same period last year, in Asia-Pacific, total investment capital only recorded a slight decrease of about 14%.

This shows that investors still maintain a strong interest in the Asian region, markets that possess fundamental factors supporting long-term development. They take advantage of the growing demand for logistics real estate and warehouse real estate.

According to Savills, in the Japanese market, logistics continues to be a segment that attracts investors, especially foreign investors who want to join Japan.

Similarly, the Indian market is also quite active when the absorption rate of new logistics supply in the second quarter of 2023 reaches 40-50% thanks to policies supporting production activities such as the Production Linked Incentive Scheme - PLI.

In general, sustainability is still a consideration in all negotiations, especially in developed markets. Logistics space needs to meet energy optimization requirements as well as ensure businesses' commitment to environmental, social, and governance (ESG) investing. These are considered the basic factors that make the project attractive and bring a competitive advantage in future leasing decisions.

Matthew Powell, head of Savills Hanoi, said Vietnam is a destination for many businesses in the manufacturing and logistics sectors, especially with the development of the e-commerce industry. This is coupled with increased demand for high-quality industrial real estate.

Currently, many businesses are having difficulty finding a location. Industrial parks and logistics parks, especially around big cities like Hanoi, have high occupancy rates. The supply of industrial real estate is still lacking compared to the development demand of businesses.

Therefore, this is an opportunity for international real estate developers to invest in Vietnam, especially when foreign capital flows into Vietnam's sector are still abundant. Many investors are seizing the opportunity to offer products suitable for the market.

"Because of that, the supply shortage will soon be resolved," Matthew Powell said.

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