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Asia Connect / Europe
SEA sees logistics boom from supply chain shifts
E-commerce expected to drive long-term growth of logistics real estate in the region
Yuki Li 4 Dec 2023

Playing an increasing role in evolving supply networks, Southeast Asia is set to become an important investment market for logistics real estate.

In the short-to-medium term, this role is driven by the China Plus One strategy as manufacturers look to the region for supply chain diversification. In the long term, the region’s e-commerce potential is massive, given its growing consumer class, Knight Frank says in a recent report.

These developments are boosting the demand for real estate, particularly for warehouses, distribution facilities, and fulfillment centres. Logistics rentals in 17 key cities across the Asia-Pacific region grew by an average of 10.4% year-on-year in H1 2023, largely fuelled by robust demand from e-commerce, third-party logistics (3PL) entities, and manufacturers.

The 3PL market in Southeast Asia is forecast to see a compound annual growth rate (CAGR) of 5.5% in the next two years, with the market value reaching US$55.7 billion by 2025, according to a report from Luwjistik, a Singapore-based freight procurement platform.

Investors are upbeat about the growth prospects of e-commerce in the region, and its digital economy as a whole. “The shift towards profitability, coupled with increased digital participation, is expected to elevate Southeast Asia’s digital economy, fostering social progress in the process,” says Fock Wai Hoong, head of Southeast Asia at Temasek.

Singapore’s state investment firm “holds a positive outlook on the future of Southeast Asia’s digital economy and intends to continuously deploy catalytic capital to stimulate sustainable and inclusive growth for the benefit of all generations”, he adds.

Rental growth

Most cities in the SEA region recorded stable or improved logistics rents, with Manila recording the highest y-o-y rental growth in Asia-Pacific in H1 2023, at 49.3%, fuelled by a strong e-commerce sector, Knight Frank says.

Singapore is expected to see a 5% to 10% capital value growth in logistics real estate in 2024, according to PGIM’s Asia-Pacific Real Estate Outlook for 2024. This reinforces Singapore's status as a regional hub, with e-commerce, the largest digital sector, remaining a significant growth driver.

Indonesia, the most populous country with the highest GDP in Southeast Asia, is also facing immense logistics real estate investment opportunities. However, Jakarta is the only market to defy the growth trend in the region, Knight Frank says. Rents in the city were down 4.8% in H1 2023, compared with a 5.3% growth in the previous six months, highlighting a nuanced shift in its rental market dynamics.

Signalling confidence in the region’s potential, DHL Supply Chain, a contract logistics solutions provider, recently announced plans to invest €350 million (US$380.8 million) in Southeast Asia over the next five years to expand its warehousing capacity, workforce, and sustainability initiatives.

“As Southeast Asia's powerhouse and leading economy, and as one of the region's largest e-commerce markets, Indonesia offers significant business opportunities across all sectors,” says Andries Retief, the firm’s chief executive officer for Southeast Asia. “Following the government's recent announcement of a US$400 billion investment into infrastructure, we can expect the logistics and supply chain sectors to improve their efficiencies and attract more demand from companies seeking to diversify their supply chains.”

With the rapid growth of e-commerce, the focus on optimizing the sector’s logistics footprint has driven demand for modern facilities. Preference for institutional-grade facilities in core areas and last-mile locations continues to fuel leasing activity in the region, according to the Knight Frank report.

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