Driven by demand for e-commerce and pharmaceuticals, the industrial and logistics real estate segment in Vietnam emerged as the most resilient asset class in 2021.
Real estate consultant Jones Lang LaSalle (JLL) stated in its latest report on the segment that the period from early to mid-2021 will go down in history as a time when Covid-19 altered life and business in Vietnam. Vietnam took early and stringent measures to enforce social distancing by most provincial and municipal authorities worldwide, leading to a surge in consumers staying at home and flocking to online shopping portals, dramatically accelerating e-commerce. 'Amidst economic slowdown, Covid-19 has spurred a surge in e-commerce and accelerated digital transformation,' said Trang Bùi, Head of Client Development at JLL Vietnam's Transaction Department.
Warehouse and supply chain, manufacturing facilities, and logistics/industrial buildings have seen a concentration of investment in recent years due to the rise of e-commerce and third-party logistics (3PL) services.
According to the Vietnam e-Commerce and Digital Economy Agency, Vietnam is one of the fastest-growing e-commerce markets in Southeast Asia, driven by its young and tech-savvy population, high smartphone ownership rates, and robust growth of 4G connectivity. The growth rate of retail e-commerce reached 18% last year, amounting to $11.8 billion. JLL predicts that investment in logistics and industrial sectors in the Asia-Pacific region will nearly double from 2019 to 2021 and reach $50-60 billion between 2023 and 2025. In the second quarter of this year, the total area of industrial land and ready-built factories was 97,000 hectares and 1.9 million square meters in the north, 66,000 hectares and 35,000 square meters in the central region, and 252,000 hectares and 3.2 million square meters in the south.
Due to the demand for e-commerce and pharmaceuticals, the industrial and logistics real estate segment in Vietnam became the most resilient asset class in 2021.
During this quarter, numerous M&A activities took place, with companies like GNP Industrial and KCN Vietnam making new investments, indicating significant potential in the market even amid the pandemic. "While many investors seek to allocate funds to stable income assets, there is also a growing trend of increasing exposure to logistics assets, which will further enhance the attractiveness of the logistics and industrial asset class," stated Trang.
Simultaneously, factories have faced labor shortages due to restricted mobility, impacting supply chains and manufacturing. As part of the logistics control measures during the COVID crisis, the government classified goods into essential and non-essential categories, leading to varying degrees of disruption in goods delivery for logistics stakeholders. There is a demand for warehouse expansion in locations near urban areas for FMCG, e-commerce, pharmaceuticals, and cold storage, whereas industries like automotive, heavy machinery, and chemical manufacturing are likely to seek short-term leases in suburban areas.
According to Trang, despite a 25% increase in construction material prices this year, the industrial and logistics real estate sector in Vietnam has undoubtedly remained the most resilient asset class in 2021, thanks to the demand for e-commerce and pharmaceutical services.
However, the logistics industry must overcome many challenges to achieve growth targets. To enter the next phase of the industrial and logistics cycle and enhance competitiveness among regional peers, it is essential to continue investing in infrastructure such as highways, utility networks, and renewable energy. Significant improvements are also needed to reduce the time and cost required for international transportation.
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