Globally, the logistics sector received investment of £237 billion in 2021, £81 billion more than in 2020, and the UK and US experienced record take-up of logistics assets. Demand is healthy, with vacancy of only 3.5% in Europe, 4.4% in the US and growing requirements in Asian markets. E-commerce is driving logistics demands, and Savills forecasts that European online sales will be 25% of the total spend in 2025, compared to 15% in 2020.
Global Supply Chains and Logistics
According to Savills latest Impacts publication, the global logistics sector will have the wind behind it for the foreseeable future, with the main drivers being e-commerce and the race for additional warehouse space to secure international supply chains.
Marcus de Minckwitz, Head of EMEA Industrial & Logistics, Savills, said: “E-commerce in the UK was about five years behind the US, and continental Europe is about five years behind the UK, so we have very strong growth ahead. Amazon is only recently established in Poland and Spain, for example.”
In the last two years, the pandemic and the current geopolitical crisis in Ukraine have meant that companies all over the world have encountered supply chain issues.
Securing supply chains means a shift from a ‘just-in-case’ system to a ‘just-in-time’ strategy, and this means not only increasing inventories, but also the nearshoring or reshoring of manufacturing.
Just-in-case inventory management refers to a strategy in which inventory arrives precisely on time and no sooner. In other words, it focuses on minimising storage and inventory costs. Conversely, just-in-case inventory management means that companies buy supplies to meet a range of demand levels. This strategy helps manufacturers avoid inventory management challenges such as supplier delays, unexpected increases in demand or spikes in the cost of materials. It focuses on being prepared rather than the cost implications of holding stock.
A 2021 McKinsey survey found that 61% of companies had increased inventory of critical products. This has naturally been a significant driver of warehouse take-up in the past two years and demand is set to continue. Vacancy is at record low levels and Savills Logistics and Industrial Real Estate census 2021 found that the lack of supply and zoning for new supply were the key challenges for market participants.
Gregg Healy, Head of Savills Industrial Services in North America, highlighted: “The need for additional space is so great that we are even seeing Grade A offices being torn down and converted into industrial sites in the US. Even though more than 700 million sq ft of warehouse space is under construction in the US, this will not be enough.”
With a lagging development pipeline, most markets will be undersupplied for the foreseeable future, which will push up rent costs.
Marcus de Minckwitz added: “With such a gap between supply and demand, strong rental growth can be expected across the world and occupiers are likely to tolerate this. Rising rents are a concern for warehousing occupiers; however, they only form a small part of their overall costs, at an average of 5% of their overheads. Transport and labour are far more significant.”
Supply pressure will force the industry to innovate, and forecasts expect more multi-storey warehousing in Europe, especially close to major cities. The integration of a higher level of technology in the industry will also be essential to prevent future supply chain challenges.
For the global logistics sector there is little sign of the perfect storm clearing, explains Kevin Mofid, Director, Head of EMEA Industrial and Logistics Research. “While in the long-term these headwinds could be outweighed by a reorganisation of global supply chains, a move to nearshoring production would benefit industrial markets in developed nations. On the other hand, continued GDP growth and e-commerce penetration in developing nations mean demand for warehousing will increase even if manufacturing declines.”
Half of these pipeline projects will be under branded management. Adding further international appeal is the new wave of branded properties such as InterContinental Grand Ho Tram, Holiday Inn Resort Ho Tram, Hyatt Regency Ho Tram, and the Grand Mercure. Proximity with HCMC has seen 90% of these new resort developments also supplying residential components such as condominiums or villas.
As with every new destination, early-stage developers need to be even more entrepreneurial by tapping into longer-term opportunities to ensure others follow. Developing a critical mass of quality developments with premium supporting appeals will result in higher, more constant visitor flows. Mr. Mauro commented: “In the past two years, Ho Tram and Long Hai have come under increasing attention of international operators keen to establish brand presence, compared to their earlier “wait and see” approach to better understand destination potential. Despite the Covid-19 effected global slowdown, Ho Tram and Long Hai were two of the very few destinations whose occupancy and room rates remained around pre-pandemic levels, with in 2021, actual upticks in both metrics for the majority of resorts. This also implies demand for second home properties as weekend vacations become more popular, and buyers increasingly grasp the value of getaway options nearby HCMC. As a result, villa prices have been moving up together with increased quality, and extent, of product offer.”
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Logistics in Viet Nam
The industrial and logistics sector in Viet Nam has been increasingly popular and has seen good demand in the post-pandemic. As e-commerce is expanding across the region and wealth is rising, logistics real estate in Viet Nam and throughout the region has a strong foundation.
Read more about Viet Nam’s expected industrial performance in 2022 here.
Savills Industrial Insider Q1/2022 outlines that Viet Nam's industrial production increased by 8.5% YoY in March 2022, after an upwardly revised 9.2% gain in February, the largest rise since May 2021. This represented the fifth straight month of industrial output increases.
John Campbell, Associate Director of Industrial Services at Savills Viet Nam assessed that governmental support policies and the successful vaccination campaign have instilled confidence in foreign investors and developers. For example, the market saw notable investments by Fuchs and framas, leading German companies, in the first quarter.
“The pandemic slowed activity during the last two years. However, from the end of 2021, the economy picked up and has been supported by the reopening of international borders and visa exemptions for citizens from 13 countries. This means that foreign investors, including multinationals, have been able to return to Viet Nam and can visit projects in person, sign contracts, and complete legal processes like gaining investment registration certificates (IRC) and enterprise registration certificates (ERC),” John Campbell added.
The outlook for Viet Nam’s logistics sector is healthy. With increasing US tariffs on goods from China, coupled with Viet Nam’s attractive policies, competitive labour costs, and improving infrastructure, foreign companies are moving to Viet Nam. As the country’s industrial scene is increasingly moving towards high-value-added manufacturing, the policies are particularly appealing for companies working in high-tech manufacturing, technology, R&D, renewable energy, and smart agriculture.
Conclusion:
Savills Industrial Services is a growing and dynamic team that delivers optimised solutions for clients looking for logistics real estate. The team’s detailed understanding of the market means clients can make informed decisions. For support with any industrial real estate needs, from sourcing and market entry to negotiations and development, contact John Campbell.
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