The post-Covid industrial property market in Thailand will be shaped by the rapid growth of e-commerce fuelled by online retailers, increasing demand for modern logistics property spaces including data centres, and heavily promoted Eastern Economic Corridor (EEC) projects aimed at attracting foreign investment, according to the international real estate consultancy CBRE.
Thailand could benefit from both trade tensions between the United States and China, and firms with large reliance on China-based production establishing secondary production bases elsewhere and/or backup supply chains, said Adam Bell, head of industrial and logistics at CBRE Thailand.
"Decisions around locations of manufacturing and supply chains are not made and implemented overnight, so any benefits from these for Thailand may take some years to materialise," he said.
Prior to the trade tensions and the supply-chain disruptions caused by Covid-19, Thailand was already seeing increased foreign direct investment (FDI) from Chinese companies, which looks set to continue when air travel resumes, CBRE believes.
The scale of the Chinese industrial market compared to Thailand's means that even a small percentage of Chinese manufacturers establishing facilities in Thailand would mean a large influx of FDI. However, other countries such as Vietnam are also fighting for this possible new investment.
According to CBRE Research, labour costs in Thailand for some labour-intensive industries are a concern, but overall, the country still provides a very competitive package when compared to its rivals for manufacturers.
Parcels get sorted along the conveyor belt at a modern logistics centre operated by Kerry Express in Samut Prakan province. (Photo: Somchai Poomlard)
Over the years, Thailand has developed strong supply chains around its main industries such as the automotive industry. Companies can start manufacturing in Thailand and source the vast majority of their materials and products within the domestic market, rather than having to import parts.
In newer markets, many of the parts need to be imported. It takes many years to develop these types of supply chains. CBRE expects that when international travel resumes, there will be an uptick in demand for serviced industrial land plots in industrial estates and parks.
The rise of e-commerce, meanwhile, has been accentuated further during the pandemic, which closed retail stores and other facilities for weeks or months at a time. As well, many people for the first time were spending all their working hours at home rather than in the office.
"We have never seen this before in our history or the history of this industry, with more than 50% or at some moments double the volume per day," said Alex Ng, CEO of Kerry Express (Thailand) Ltd. "Kerry is working to increase our capacity."
This additional volume will affect the warehouse leasing market as delivery service providers scramble to take extra space in prime logistics areas. Already there is a shortage of developable warehouse land plots in prime areas of Bang Na-Trat, said Mr Bell of CBRE.
"We are also seeing an upturn in inquiries into the provision of data centre space," he added. "A number of data centres are already completed and operating in Thailand whereas more are currently under construction.
"The government incentives aimed at attracting digital sector firms have attracted more companies in the data centre field that are starting to consider investing in the country to draw some of the benefits the government is providing."
EEC BECKONS
The EEC has been the flagship scheme of the current government, with considerable time and resources been put into major infrastructure projects such as high-speed rail linking Bangkok's two airports to U-tapao, the Eastern Airport City project at U-tapao, and the expansion of Map Ta Phut deep seaport.
The motorway road network in the EEC region has improved greatly over the past decade, which has made movement from manufacturing bases to Laem Chabang and elsewhere far more efficient. The government has also heavily promoted a number of new "S Curve" industries by offering investors numerous tax and non-tax privileges.
"The big question Thailand needs to consider is where to go from here. The overall industrial platform the country offers is still very strong, even if high labour-intensive industries find the country more expensive than some of the emerging markets," said Mr Bell.
"Thailand needs to consider how it can supplement the traditional industries that the country has developed with new technology, where higher-skilled labour is prioritised over labour-intensive industries."
In any case, manufacturing locally is very well set up for foreign investors. Foreign manufacturers can own 100% freehold land, provided it is in one of the 61 industrial estates (aside from Laem Chabang and Map Ta Phut where land is leasehold) or where they have Board of Investment (BoI) approval to buy land. This is very attractive for investors and provides a strong incentive to invest in Thailand when compared with some regional competitors.
"Foreign property ownership restrictions mean that development of industrial and logistics properties for rent remains open only for majority Thai-owned companies, so we have not seen much cross-border investment in this sector apart from the occasional joint venture," Mr Bell added.
"The logistics property sector has now emerged as the hottest property investment sector around the world. This sector used to be considered a dull backwater of drab sheds but now it is seen as one of the few growth sectors.
"Retail property investment is being battered by online retail in the battle of clicks versus bricks, where Covid-19 has turbocharged the shift to online retail in many markets around the world.
"The future of office space is also uncertain now that technology has made work from home possible and practical. For most commercial property investors around the world, logistics properties are now a key component of their portfolio."
CBRE Research, Mr Bell said, expects to see continued growth in the demand for modern logistics properties to satisfy the demand from online retailers. This will be one of the few bright spots in the property sector over the next few years. The logistics property development sector will continue to be dominated by a handful of large Thai developers such as WHA and Frasers Property Thailand.
