Challenges of warehouse real estate in the face of a wave of decline in the logistics industry

Looking at the long term potential

According to a report by Savills Vietnam, the demand for logistics space in the world has recorded a downward trend, partly due to the decline in global orders and transactions. Consumers are tightening their spending and demand is mainly directed towards essential products and services. This also leads to a low volume of goods produced and transported, which in turn creates an increase in the vacancy rate in warehouses, especially in markets with port advantages such as Los Angeles and Shanghai.

Meanwhile, most global markets have seen slowing demand for logistics after the boom of the past few years. The difference in demand landscape is seen as an important factor in determining the prospect of rental growth in the coming time.

Savills' report on global logistics investment in the first half of 2023 also shows that many markets have recorded new logistics supply in recent times. For example, in the US, about 20 million square meters were completed and entered the market in the first half of 2023. The Madrid market is expected to record more than 1 million square meters of warehouse space in 2023, equivalent to about 9% of current supply. New supply is expected to push up the vacancy rate.

However, looking deeper into these factors, it can be seen that the vacancy rate is not yet at an alarming level, as the indicators have not yet fallen to historical levels. The Savills report also shows that investors still have more optimistic expectations for the logistics market in Asia - Pacific.

Investors remain bullish on the Asia-Pacific market.

Specifically, while total investment 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 only recorded a slight decrease of about 14%. Investors still maintain strong interest in Asia, markets that possess fundamental factors supporting long-term development and taking advantage of the growing demand for logistics and warehouse real estate.

For example, in the Japanese market, logistics continues to be an attractive segment for investors, especially foreign investors who want to enter Japan. Similarly, the Indian market is also quite active when the absorption rate of new logistics supply in the second quarter of 2023 reached 40-50% thanks to policies supporting production activities such as the Production Linked Incentive Scheme (PLI). This has made investors maintain an optimistic outlook and seek more opportunities to expand their distribution networks in other cities in the country.

In general, sustainability remains a consideration in all negotiations between landlords and tenants, especially in developed markets. Logistics premises need to meet energy optimization requirements as well as ensure ESG commitments of businesses. These are considered fundamental factors that make the project attractive and bring competitive advantages in future leasing decisions.

Vietnam needs to seize the opportunity

In Vietnam, the logistics industry has grown strongly thanks to the growth of e-commerce. The Vietnam E-commerce Report 2023 released by the Department of E-commerce and Digital Economy shows that retail e-commerce revenue in Vietnam in 2022 reached 16.4 billion USD, accounting for 7.5% of the total retail sales of goods and consumer services nationwide. It is estimated that Vietnam's e-commerce revenue in 2023 will reach 20.5 billion USD, accounting for about 8% of the total retail sales of goods and consumer services nationwide.

Despite the strong development, logistics in Vietnam is still mostly concentrated in large markets. This is an opportunity for investors in this sector to provide a supply source to meet the growing demand for logistics.

According to Mr. Thomas Rooney, Senior Manager, Real Estate Advisory Services, Savills Hanoi, the current logistics market has not yet fully exploited its potential. Supply has not really met demand, requiring investors to be flexible in introducing new models and optimizing available warehouse space.

Mr. Thomas Rooney, Senior Manager, Real Estate Advisory Services, Savills Hanoi.

Analyzing the demand for logistics, this expert said that the e-commerce industry needs large warehouse space to store many items as well as install systems to support picking and packaging activities. In addition, international manufacturers with high value-added products expect to have warehouse space to store goods after production.

In fact, the supply of warehouse space in the Vietnamese market, especially in the North, is still not much. Therefore, investors can consider high-rise warehouses or smart port warehouses.

“Vietnam is emerging as one of the world’s leading manufacturing hubs with an increasingly improved investment environment and major trade agreements. This has made the Vietnamese industrial market more attractive to the investment portfolios of large and reputable international businesses. Investment in infrastructure and logistics will simultaneously strengthen the supply chain for manufacturing businesses.

Along with that, the positive outlook of the e-commerce industry and the continued high demand for fast delivery promise to be the premise for the logistics market to further develop in the coming time with more efficient and optimized operating models," said Mr. Thomas Rooney.

Source: https://www.congluan.vn/thach-thuc-cua-bat-dong-san-kho-bai-truoc-lan-song-suy-giam-trong-nganh-logistics-post266672.html