Although the US$41.6 billion investment in the global logistics sector decreased -41% year-on-year (YoY). It was still 10% above the equivalent Q2/2019 level. Investors remain bullish on the long-term prospects for the sector. 

Logistics Worldwide and Future Potential 

Demand for logistics spaces globally has slowed. This is reflected in the occupational demand, which is lower than in recent years as consumers are cutting their expenditures. Demand is primarily for essential goods and services. Markets that are inextricably linked to major ports such as Los Angeles and Shanghai, are seeing a notable slowdown in take-up as container volumes fall in line with weaker trade growth. With a general market slowdown, differences in the supply backdrop will be important in dictating the prospects for continued rental growth.

Savills Prospects shows that many markets welcomed new supply. In the US, construction peaked in Q2/20222 at 20 million m2, and in 2023, Madrid is expected to welcome 1 million m2. New supply will pressure occupancy as vacancies increase. However, it must be noted that vacancy rates are a long way from critical levels. In Madrid, the current vacancy rate of 7.2% is below the pre-Covid record low of 7.8%. Similar trends are playing out across other European markets. Even in the UK, where take-up experienced a -70% decline YoY in Q2/2023, a vacancy rate of 6.3% remains well below historical thresholds which would imply a turning point in rental growth. Furthermore, active requirements in the market, which typically lead take-up by nine months, are around 64% YoY, suggesting the slowdown will be short-lived. Leasing deals, much like transactions, are just taking longer to finalise. 

Asia Pacific experienced a relatively modest 14% YoY decline in investment volumes in Q2/2023. While the region adapts to a rapidly evolving economic environment, investors retain a strong interest in the sector and the fundamentals support long-term growth, seeking opportunities in various markets and capitalising on the growing demand for logistics and warehousing facilities. This optimism is tempered in some markets, where a combination of new supply and weaker demand is weighing on the outlook for vacancy and rent. 

In Japan, the logistics sector retains its allure amongst investors, particularly those cross-border investors looking to gain exposure to the Japanese market but unwilling to look at offices.  In India, in the first half of 2023, there was substantial absorption in tier 1 cities, with the 3PL sector playing a pivotal role in driving demand, accounting for between 40% and 50% of the absorption. Additionally, the manufacturing sector witnessed a significant surge in activity, fuelled by various incentive schemes such as the Production Linked Incentive Scheme (PLI). We anticipate increased interest from investors in 2023 underpinned by inherent domestic demand and the expansion of distribution networks in tier 2 and tier 3 cities, indicating a broader interest in regional growth opportunities. 

Sustainability remains a key consideration for landlords and tenants, especially in Europe where space will need to meet minimum energy performance standards to be lettable in the future due to rising regulation stringency. Investors and occupiers continue to focus more on best-in-class assets that meet their criteria.

Viet Nam to Take Advantage of the Opportunities

With the expansion of e-commerce in Viet Nam, the logistics sector has expanded significantly. According to the Viet Nam E-commerce Report 2023 published by the Department of E-Commerce and Digital Economy, retail e-commerce revenue in Viet Nam will reach US$16.4 billion in 2022, representing 7.5% of the country's total retail revenue from consumer products and services. Viet Nam's e-commerce revenue will reach US$20.5 billion in 2023, representing approximately 8% of the country's total retail sales of products and consumer services. 

See Savills Industrial Insider 8M/2023 for more information.  

Viet Nam's logistics still heavily concentrates on large markets such as Ha Noi or Ho Chi Minh City, which means there are opportunities for investors to satisfy the expanding demand in other provincial cities. 
Thomas Rooney, Senior Manager, Industrial Services, Savills Ha Noi, says that the current logistics landscape in Viet Nam has not reached its full potential. The supply of logistics products falls short of demand. He adds: “E-commerce requires significant warehouses for storage and packaging before transportation, and manufacturers also need spaces to store finished goods. The supply of warehousing in Viet Nam,  particularly in the North, remains limited. To maximise returns and deliver sufficient store, investors could consider multi-level warehouses or those in smart port locations.” 

Viet Nam is becoming one of the world’s leading manufacturing centres and appeals to large and reputable international corporations. Investing in infrastructure and logistics systems will also strengthen the manufacturing supply chain. Furthermore, the optimistic outlook of the e-commerce industry and the sustained rise in demand for rapid delivery serve as a foundation for the logistics market to develop further with efficient and optimised logistics supply.

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Conclusion

Are you looking to find a warehouse for your enterprises? Or are you looking to invest in logistics products in Viet Nam? Contact Savills Industrial Services for support. The team offers comprehensive consultancy services backed by the latest market research from across Viet Nam and the APAC region.

Contact Thomas Rooney for more information.