All you need to know about built-to-suit warehouses

Ngoc Tran (left), BW deputy director at BW

But what is a built-to-suit warehouse, and why is it becoming so popular among e-commerce platforms and last-mile delivery companies? Minh Ngoc, deputy director at BW, shared her knowledge about the industry.

What is a built-to-suit warehouse?

A built-to-suit warehouse is a commercial building constructed by the landlord based on the client’s special specifications. Not only will the developer acquire the land, but they also sit down with the tenant to review and agree upon all design and construction elements. Then, the landlord constructs the building and hands it over to the client as per their requirements.

Is the demand for built-to-suit warehouses mostly driven by e-commerce related tenants?

On a global scale, Vietnam’s retail e-commerce revenue was over $5.5 billion last year, up 12.7%, according to the 2022 Vietnam E-commerce White Paper. This number is forecast to reach $7.4 billion by 2025. The per-person value of online shopping reached $260-285 for the first time. Vietnam's retail e-commerce revenue last year rose to $16.4 billion for the first time.

In addition, Vietnam's e-commerce maintained a stable growth rate of 16%, ranking second in terms of e-commerce growth in Southeast Asia, after Singapore. As a result, we realise there is a rapidly increasing demand for built-to-suit warehouses, which has been driven by e-commerce related tenants because of the economic recovery. Recently, BW has received many inquiries for built-to-suit facilities from e-commerce tenants, who spend a large portion of their investment on the optimisation of logistic operations. This can minimise delivery cost, speed up delivery times, and help firms gain ground on the competition.

Therefore, the warehouse location and the warehouse design must meet their expectations for them to process hundreds, thousands, or even millions of parcels a day. And few existing facilities in the current market are suitable for these types of demands. We at BW understand that, in Vietnam, manufacturing depends on various industries. There are different requirements for infrastructure, offices, facilities, and logistics warehouses. Therefore, we provide customised warehouses for rent to suit investors of various business models, timing and costs.

The process from design to handover of specifically designed warehouses involves considerable planning, carefully chosen materials, and high-quality construction to ensure the perfect balance between function and design. In particular, Shopee Tan Phu Trung Fulfilment Centre is one of our most successful projects. Located in Tan Phu Trung Industrial Park in Cu Chi district, this single-storey fulfilment centre is designed to meet the rising needs of customers during peak shopping seasons.

BW Industrial is proud to be a developer able to acquire land swiftly and feature a responsive and seasoned in-house construction team that manages the delivery of client requirements while assuring market practices and standards.

What are the challenges that developers may face when developing built-to-suit warehouses?

It's all a matter of risk. Not only in e-commerce, but other businesses as well. If a client requests a built-to-suit project, it means that the facility has to contain the special specifications which serve only these individual users. In most cases, those kinds of specifications make it difficult to lease the warehouse once the tenant leaves.

Therefore, in the worst-case scenario, like early termination, we can minimise the risks in the contract terms. However, for this type of product, the developer needs a lot of experience and resources to deal with related risks.

What is the timescale for the construction of built-to-suit warehouse projects?

It depends on several variables. For example, the design and scale of the project, or the status of the land. One of the key things to consider is the pre-construction licensing period. For the construction timeline, developers like BW can control the design, construction period, land acquisition process, and due diligence.

However, with licensing, it is not fully in our hands to control the timeline. We have an estimated timetable for the process, but it varies depending on the project. If the project is classified as Grade 1, then it must seek approval from the central government, which may take a longer time.

In conclusion,many companies are turning to BTS solutions because they are helpful amid the increase in e-commerce and the reliance on supply chains. BTS warehouses allow tenants to rely on the expertise of the developer while focusing on their core business efficiently.

Sales and leaseback - Key terms of engagement This short Q&A with Tu Luong, director of Business Development at BW, sheds light on the current state of sales and leaseback deals for factories or warehouses. She discusses why these transactions are not very common in Vietnam and what factors to consider to maintain their success for the future.

Divestment an option in industrial real estate Investment and divestment in real estate are two sides of the same coin. Divestment is an adaptive change to a company's ownership and business portfolio in reaction to internal and external changes. There are many reasons companies choose to divest and several challenges to deal with when it happens. This short Q&A with Rebecca Trinh, BW head of Investment, will provide with a better understanding of divestment in industrial real estate.

IZ land leasing causes concerns for businesses Land lease in industrial zones is a major concern of manufacturers investing in Vietnam. This short Q&A with Hao Tran, head of Legal at BW, provides a legal perspective.