Investors rushing to expand funds for industrial land

December 31, 2021 | 14:34
Opportunities from the soaring demand for e-commerce and industrial production have prompted businesses to aggressively hunt for large-scale warehousing projects in critical locations and adjacent to major economic centres, especially with land increasingly scarce.
Investors rushing to expand funds for industrial land
The GLP-SLP joint venture aims to invest $1 billion in logistics real estate

Singapore’s Mapletree Logistics Trust Management Ltd. last month announced a proposed acquisition of a portfolio of 16 logistics properties in China and Vietnam. Of those, three properties in Vietnam were valued at $95.9 million, located in Bac Ninh and Binh Duong provinces.

According to CEO Ng Kiat, the current pandemic has highlighted the importance of logistics and placed a greater emphasis on supply chain resiliency, fuelling demand for modern logistics space.

“The acquisitions of these 16 modern Grade-A logistics assets position us well to capture these structural trends. The acquisitions in China and Vietnam will expand our network connectivity in these fast-growing consumption markets,” said Kiat.

Those properties are high-quality and modern logistics facilities that cater to the modern requirements of third-party logistics service providers (3PLs) and e-commerce tenants.

They have attracted a solid and diversified tenant base comprising primarily tenants serving the domestic consumer markets, and the tenant base includes global 3PLs such as DHL and Damco (Maersk) as well as fast-growing regional 3PLs like SF Express and Best.

The Vietnamese properties have a committed occupancy rate of 91 per cent with a weighted average lease expiry (by net lettable area) of 2.9 years.

In October, Thanh Thanh Cong Industrial Real Estate Corporation (TTC Industrial) successfully auctioned five land lots with a total area of more than 290,000 square metres, increasing its land fund for warehouses to over 500,000sq.m. Thus, this year, TTC Industrial and its member companies have cooperated and developed a totally new land bank of up to 320 hectares.

And in August, South Korea’s KTB Asset Management Co. invested $104.7 million to purchase three logistics centres in Vietnam. These centres then will be released to LogisValley Group, a logistics service provider focused on developing logistics centres and automation systems.

The warehouses cover a combined floor area of 109,800sq.m and are located in LogisValley logistics hubs in Ho Chi Minh City, Haiphong, and Bac Ninh, where many big South Korean manufacturers have a presence. Their proximity to industrial complexes also bolsters profitability.

Since entering Vietnam in October 2020, SEA Logistic Partners (SLP) and its joint venture partner GLP, a global investment management and business builder in logistics, real estate, infrastructure, finance, and related technologies, have acquired six development sites with a total land area of more than 780,000sq.m. Over the next 3-4 years, the joint venture aims to invest approximately $1 billion to build 1-1.5 million sq.m of modern logistics real estate in Vietnam.

Advanced standards

With the rising consumption, an expanding middle-income urban population, and a strong e-commerce adoption rate, the demand for quality logistics space is expected to remain robust, while the supply of Grade-A logistics space remains limited.

Vietnam is also a beneficiary of the structural trend of supply chain diversification. The country’s competitive costs and attractive investment environment have made it an ideal location for investors seeking to reduce costs and diversify supply chains as part of their strategy to build supply chain three resiliency.

Commenting on the potential of industrial real estate investment in Vietnam, Neil McGregor, managing director of Savills Vietnam, insisted that the country is still an attractive destination for international real estate investors.

“However, the rapid development of industrial production and industrial zones requires a new industrial park model according to advanced standards in terms of greenhouse gas emissions, waste treatment, air pollution, green spaces, and encouraging recycling technology and the reuse of energy and waste,” McGregor said.

Following similar trends, the explosion of e-commerce is forcing industrial real estate developers and logistics in Vietnam to boost the development of new generation warehouse systems.

Jenkin Chiang, co-founder and managing partner of SLP, told VIR that the demand for quality, well-positioned modern facilities will remain strong on the back of long-term trends such as the growth of e-commerce and increasing domestic consumption across major markets.

“E-commerce orders continue to surge which is good news for the logistics sector, but it has also created greater complexity in the modern supply chain due to more demanding customer shopping preferences,” Chiang said. “Our focus is to create a smart logistics ecosystem where the warehouse serves as a connecting point for customers to access the latest advancements in automation, robotics, data analytics, and other services to increase their operational efficiency.”

Technology, however, Chiang stressed, is key to the next modernisation phase in the logistics industry. “As the cost of technology and computing power continues to decline and the demand for higher speed, reliability, transparency, and data-driven decisions in the e-commerce supply chain increases, the logistics real estate sector is experiencing accelerated introduction and innovation of new technologies,” he said.

“Greater convenience must not come at the expense of environmental viability. We see this as a long-term trend and the whole industry has to evolve in a sustainable manner to improve overall efficiency and competitiveness without harming the environment and supporting the health and wellbeing of workers,” Chiang said.

Bringing value

The increased demand of the e-commerce industry has forced businesses to operate at high speed, expand storage, and respond to orders quickly. As a result, many businesses have turned to automation and advanced supply chain technology to ensure operational efficiency and optimise costs in the warehouse. Some standout solutions include automated mobile robots and real-time analytics tools.

Cao Thi Anh Thu, director of Loglag Technology JSC, said that the application of technology to the logistics sector is inevitable.

“If tech to support transportation is applied for solutions to help connect parties such as shippers, vehicle owners, drivers, distributors, and other stakeholders in the supply chain, it is completely possible to create better effects in the future. Technology will help the supply chain operate more efficiently, optimise costs, save time, and bring more value to customers as well as the national economy,” said Thu.

Vietnam’s logistics service providers currently apply technology to their daily work at a low level, mainly using electronic customs declaration software, car geolocation technology, and basic email software.

According to the Vietnam Logistics Business Association’s data, about 50-60 per cent of enterprises are currently applying from 2-17 different logistics services, depending on their size and services.

Many large enterprises successfully apply technology solutions to bring efficiency to logistics services, significantly reducing related costs – for example, electronic ports and electronic delivery orders at Saigon Newport Corporation, or the application of a total solution in logistics services at T&M Forwarding Company.

This year has seen many merger and acquisition deals between logistics service providers and domestic and foreign companies, helping to demonstrate the promise of the sector in this country. Typical joint ventures were the agreements between ITL Corporation and Symphony Int. Holdings, Gemadept Corporation and Sumitomo Corporation, and Gemadept Logistics with CJ Logistics.

The development of the warehouse and logistics industry in Vietnam seems to be scoring in the right direction. The country had an overall score of 5.67 out of 10 in the 2021 Emerging Markets Logistics Index, released by leading logistics company Agility.

The firm ranked 50 economies based on the factors that make them attractive to logistics providers, freight forwarders, shipping lines, air cargo carriers, and distributors: domestic logistics opportunities, international logistics opportunities, and business fundamentals.

By Bich Ngoc

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional