Vietnam warehouse sector sees opportunity amid challenges  

According to a new Savills Vietnam report, the global demand for warehouse spaces is experiencing a decline, attributed in part to a reduction in manufacturing orders and goods transaction volumes. 

Consumers are adopting a more frugal approach to spending, directing their focus primarily toward essential products and services. Consequently, this shift has led to a comparatively low production and transit volume, and an overall surge in vacant warehouse space.

Bucking the global trend in consumer spending, Vietnam’s economy is thriving. However, there are structural challenges that need to be addressed in the logistics industry for the economy to reap the full benefits. 

According to the Vietnam Logistics Business Association (VLBA), Vietnam’s logistics industry grew by 15 percent in 2022, which put the country with one of the fastest-growing logistics sectors globally. The industry has grown rapidly along with an increase in high value-added manufacturing, and a growing middle class driving the rise of e-commerce. 

Within the sub-sector of the warehouse industry, the main drivers are retail and e-commerce, manufacturing and 3PL. 3PL stands for third-party logistics, also known as order fulfillment. A 3PL warehouse provides a full range of e-commerce fulfillment services, including storage, order processing, shipping, and receiving. Many 3PL warehouses also provide value-added services such as returns processing, cross docking, or kitting.

Retail and e-commerce revenue jumped from US$8 billion in 2018 to US$16.4 billion in 2022 and is forecasted to increase by 25 percent to US$20 billion by the year’s end, according to a report by the Vietnam E-commerce Association. 

Furthermore, manufacturing remains the single biggest Foreign Direct Investment contributor by far, driving the demand for warehouse space, especially near the Central Business District and key port areas.

However, John Campbell, associate director, Industrial Services, Savills Vietnam, said that there are several structural challenges in the logistics industry. There is a low adoption of technology and digitalization, complicated and cumbersome customs procedures and licensing requirements, and not enough investment in maritime transport infrastructure.

Nonetheless, Campbell added that these challenges also presented opportunities for private equity firms and investors as the still expanding manufacturing sector and rising middle-class population are fueling the growth of the logistics industry. 

John Campbell, associate director, Industrial Services, Savills Vietnam. Photo credit: Savills Vietnam

Investors optimistic on Asian logistics landscape

For the first half of 2023, there was an influx of new warehouse space in several countries, notably the U.S., which completed the construction of approximately 20 million square meters. Madrid, Spain is anticipated to augment its warehouse space by over 1 million square meters, constituting nine percent of the existing supply. 

Despite these developments, the current vacancy rates are not deemed alarming. For instance, in Madrid, the existing vacancy rate stands at 7.2 percent, lower than the pre-Covid record of 7.8 percent. Even in the UK, where the vacancy rate is 6.3 percent, it does not reach historical highs. 

Savills’ report stated that investors maintained optimistic expectations for the Asia-Pacific logistics market. 

In particular, while total investment in the logistics sector during the second quarter of 2023 across the European market witnessed a 50 percent decline compared to the same period last year, the Asia-Pacific region experienced a more modest decrease of approximately 14 percent. 

Investors continued to demonstrate robust interest in Asia, driven by fundamental factors supporting long-term development and a growing demand for logistics and warehouse real estate.

In the Japanese market, logistics remains an appealing segment for investors, especially those from overseas seeking entry into Japan.

Similarly, the Indian market exhibits dynamism, with the absorption rate of new logistics supply in the second quarter of 2023 reaching 40 to 50 percent, propelled by supportive policies for manufacturing activities such as the Production-Linked Incentive Scheme. This sustained investor optimism is prompting the exploration of opportunities to expand distribution networks in various cities within the country.

Photo credit: iStock/ Tongpool Piasupun

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