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Comprehensive logistics and stable supply chains are fundamental to business continuity. Rising incomes, improved purchasing power, e-commerce, and an ageing, health-conscious population are driving increased demand for logistics properties like ready-built warehouses and cold storage facilities. Astute investors are capitalising on this demand. However, recent global events and softening in export orders pose a threat to the bourgeoning industry.

Overview

Savills is well-versed in delivering surveys, feasibility studies, and market studies on cold storage and ready-built warehouse products. Cold storage facilities are specialised warehouses for food and other perishable items and leased to cold chain logistics companies. Ready-built warehouses (RBW) are pre-built to the owners’ requirements. More than just ready-built shells, renowned developers are increasingly delivering sustainable, high-quality properties and services within RBW projects. RBWs facilitate shorter time commitments, less significant capital requirements, and speed to market.

While the cold chain sector in the Asia Pacific delivers less cold storage capacity per urban capita than North America and the United Kingdom, the sector is seeing healthy growth. Forecasts expect the Asian worth of the sector to reach US$255 billion in 2026, rising from US$111 billion in 2020.

The pandemic boosted logistics real estate and gave rise to an increased need for food and vaccine storage, and demand from e-commerce players. While the instant need driven by the pandemic has subsided, the sector’s moment in the spotlight has ignited the interest of real estate investors. Savills Director of Regional Industrial and Logistics (APA) Jack Harkness noted that investors are paying attention to the industry and that Savills expects raised transactions and institutional involvement.

Industrial and Logistics Supply Landscape

Viet Nam’s industrial and logistics market has rebounded since borders reopened in March 2022, and it is emerging as a leading regional manufacturing hub. Its competitive wages of US$308/month in 2022, comprehensive infrastructure plans, favourable geographic positioning, attractive investment policies, and free trade agreements (FTAs), mean Viet Nam continues to garner foreign investment. The rise of China Plus One strategies and China’s continued lockdown have bolstered Viet Nam’s logistics scene.

By June 2022, Viet Nam had 563 specified industrial parks (IPs) spanning 210,900 hectares. Occupancy averaged 71%. With healthy demand and high occupancy, the government is prioritising industrial land supply, supporting the expansion of logistics players. In H1/2022, Prime Minister Chinh approved nine new IPs that will launch between 2023 and 2025.

In Q3/2022, Vietnamese RBW and cold storage supply reached 4,484,270 m2. Ready-built warehouses had the greatest share with 4,133,458 m2. Occupancy for RBWs across the country was strong at 75%. Demand for cold storage is high, and occupancy reached 91%. However, there are fewer than 50 cold facilities in the country. This is due to the large capital outlay required from developers, the high operating costs, and lengthy construction times.

According to the General Statistics Office (GSO), in 11M/2022, the freight carried increased by 25% YoY to 1,833 million tonnes.

Several new ready-built projects broke ground in the first half, including SLP Long Hau and KCN Ho Nai in the south. In the north, Core5 Hai Phong broke ground at Deep C II and will deliver 96,000 m2 of ready-built factories and warehouses in 2023, and Vietlog Industrial will deliver 29,000 m2 of modern warehouses in Hung Yen in 2023. In July, Savills brokered a deal between Gaw NP Capital and Sao Do Group at Nam Dinh Vu IP; the project will be a welcome addition to Gaw NP’s ready-built portfolio. In December, Sembcorp broke ground at its logistics park project at VSIP Quang Ngai; the project will be the first modern ready-built in Central Viet Nam and will deliver 35,5000 m2 GFA.

What is Driving Logistics Demand?

Modern trade drives logistics demand. Viet Nam’s growing middle class, maturing economy, healthy export market, and strong e-commerce scene are facilitating healthy logistics demand.

According to the General Statistics Office (GSO), in 11M/2022, retail sales of goods and services in Viet Nam reached approximately US$219 billion, increasing 20% YoY. Of which, sales of goods accounted for US$172 billion, increasing 15% YoY. Vietnamese consumers are now familiar with imported products, and there is a perception that imported food brands are of higher quality, which necessitates cold storage and warehouse solutions.

Exports of goods reached in 10M/2022 reached US$313 billion. Seafood products are substantial users of cold storage, and this sector had an export value of US$9.4 billion by the end of October. The Viet Nam E-Commerce White Book 2022 forecasts that the country’s B2C retail e-commerce revenue in 2022 will reach US$16.4 billion. Viet Nam’s e-commerce value will reach US$39 billion by 2025, second in Southeast Asia after Indonesia (US$104 billion).

Ageing populations, health-conscious consumers and the expansion of pharmaceutical brands also mean increased demand for logistics and cold storage facilities.

Opportunities

The sector has clear structural drivers. Developers are using the present opportunities to deliver modern and sophisticated products, many of which promise commitments to sustainability, efficiency, and high-quality services.

Automation and digital solutions are increasingly popular, given rising demand for supply chain modernisation. According to experts at LCA Savills, automation and automated storage and retrieval systems (ASRS) are seeing significant upticks in Southeast Asia.

Lars Amstrup, COO of LCA Savills, said: “Automation will achieve the same storage quantity in a smaller building, reduce power usage and increase the productivity of warehouse operatives. Yet the capital cost is not significantly higher for a new build facility. Much of the stock around Asia is older and unsuitable for adaptation to automation, so demand for new build modern space is set to grow.”

Infrastructure development is key to maintaining FDI inflows and Viet Nam’s position on the international stage. Currently, Viet Nam spends approximately 6% of its GDP on infrastructure on FDI, higher than the 2.3% in other ASEAN countries.

Good road systems underpin successful logistics. By 2030, the government aims to upgrade the road surfaces and extend the national highway system to 5,000 km. There are plans to deliver as many as eight new airports between 2022 and 2050, including Long Thanh International Airport in Long An, which will have an annual capacity of 100 million passengers. Viet Nam’s port infrastructure complements the country’s favourable geographic positioning and is a major FDI draw; according to Decision 522/QD-BGTVT, Viet Nam has 296 ports; 36 of which fall are Type I, II, III or special posts.

Threats

While demand is on the rise, mounting global tensions and headwinds exist. There are questions if the ambitious infrastructure targets are realistic.

The pandemic and the Russia-Ukraine war highlight the sensitivities of global supply chains. However, Global supply chains do not need mega catastrophes to experience knocks, as was made evident by Evergreen’s Ever Given blocking the Suez Canal in March 2021.

Savills

Small digger trying to free Ever Given blocking the Suez Canal in March 2021.

See about: Vietnam Quarterly Market Report Q4 2022

Expert Opinion

Giang Huynh, Associate Director of S22M, commented: “E-commerce and online shopping are putting increasing pressure on supply chains, distribution, and retail channels, which means businesses are looking for well-located warehousing and logistics properties. Fundamentals are strong, but the sector is still fragmented. However, rapid infrastructure development and planning will change the value composition significantly. For example, Long Thanh International airport in Dong Nai will play a fundamental part in the reshaping of supply chains. Improved infrastructure and transport links will accelerate exports from Viet Nam, which presents great opportunities for logistics developers and tenants.”

Conclusion 

Recent disturbances to global supply chains, manufacturing migration from China to Viet Nam, a strong domestic economy and healthy FDI inflows, are catalysts for demand for modern logistics. Developers are tapping into this market and delivering quality properties.

About S22M

Are you keen on expanding into industrial real estate? Plan your entry, expansion, positioning, or marketing strategy with S22M, a cutting-edge business line from Savills Advisory. Giang and her team deliver killer spatials and customisable reports that can highlight national inventories, custom catchment analysis, data and projections at local, provincial and macro levels, or viable demand modelling. Contact Giang for more information.

Learn about S22M and our services: S22M

Definitions:

  • Ready-Built Warehouse: A property that has been developed on industrial land by a known developer and is leased to a tenant.
  • Cold Storage: This is a form of ready-built warehousing but offers specialised temperature-controlled services below 220C.

 

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