Retail logistics real estate - "A delicious cake" for investors

Vietnamese consumers increasingly favor the convenience of online shopping, driving a wave of shifting storage of goods from retail stores to warehouse space.

The rapid growth of e-commerce is reshaping the logistics market and creating more diverse asset classes; the most prominent of which is urban logistics real estate.

The logistics system is the foundation for warehousing services, also known as order fulfillment services, which consist of two parts: order processing and shipping to the buyer.

Typically, to serve urban needs, logistics areas are divided into three zones starting from the central core.

Distribution centers and last-mile warehouses are required to be located within Zone 1 - within 10km of urban areas, within 30 minutes of truck drive, typically located in the periphery of cities and provinces.

Zone 2 will include sorting centers, concentrated mainly on the city fringes, next to bus stations, railway stations, airports and other freight solutions.

Zone 3 is located in the inner city with the highest density of goods, mainly delivery and pick-up points at existing stores, collection points such as lockers and shelves are served by a smaller delivery fleet.

Currently, urban logistics real estate is attracting investor attention.

Experts from Cushman & Wakefield (C&W) commented that although the concepts are different, this new field is often confused with the urban logistics model.

Normally, a logistics city will be associated with an important type of infrastructure serving logistics services such as international seaports and international airports.

While urban logistics can be understood as an urban model associated with the development of logistics services, taking logistics services as a key economic sector, urban logistics takes urban areas as the center, serving mainly the consumption needs in cities.

The demand for urban logistics real estate for retail is driven by the growing trend of last-mile deliveries in urban areas. This is especially true in Vietnam, where nearly 40 million people live in cities.

However, urban delivery costs are also increasing, reaching 50% or more of total supply chain costs.

Therefore, e-commerce investors are eager to have logistics real estate with access to the inner city within a 30-minute drive. This is also the top priority of developers to increase competitive advantage, C&W Company experts analyzed.

Currently, due to expensive land costs and stakeholder resistance to urban logistics, urban logistics projects are mainly located in the periphery or suburbs.

C&W Company's data shows that in the fourth quarter of 2023, the Southern key economic region recorded a total warehouse supply of about 5.5 million square meters of floor space; of which Ho Chi Minh City accounted for about 14% of the total supply.

The Northern key economic region recorded a warehouse supply of about 2.2 million square meters of floor space; of which, Hanoi accounted for 12% and Hai Phong accounted for 26% of the total supply.

Ms. Trang Le, Senior Director of Consulting and Research at JLL Vietnam, commented that since the end of 2023, the southern logistics market has recorded positive signs of demand recovery.

Notably, the newly signed leases are a continuation of the expansion from existing manufacturers, 3PLs (third-party logistics companies) and e-commerce.

In fact, currently, in Ho Chi Minh City and Hanoi, the scarcity of available land and logistics facilities forces developers to take advantage of different types of real estate, often old buildings or vacant land.

However, older buildings are more risky and less efficient in operations such as unloading trucks and vans as well as storing goods.

However, logistics warehouse locations near inner-city delivery points remain a top priority for 3PL companies, e-commerce retailers and parcel companies.

In some cases, older buildings are being refurbished to a relatively better quality. With this location, retailers will attract more customers thanks to the ability to deliver quickly.

It is forecasted that by 2050, the Ho Chi Minh City metropolitan area will have 28-30 million people with an urbanization rate of about 90%.

Higher urban density means greater constraints on logistics land use.

There is currently a large gap between the required urban logistics space and the actual quantity.

Closing this gap requires investing time and money to address barriers to the use of logistics services in cities.

Experts say local governments and investors need to strategize about "urban spatial models."

Quantifies total demand for urban logistics space in Vietnam’s top e-commerce markets based on current and future online sales volumes.

This method requires calculating the ratio of truck volume per square meter of urban logistics; e-commerce revenue as spend per consumer and average number of parcels per order, based on two different truck utilization strategies: optimizing truck space (mainly 3PLs) and prioritizing delivery speed (mainly e-retailers).

For example, statistics in Ho Chi Minh City show that there are currently 9,600 businesses registered in the logistics service industry, accounting for 36.7% of the country.

This city also accounts for 54% of the country's professional logistics service providers with about 2,700 enterprises.

However, small and micro-sized enterprises operating logistics in Ho Chi Minh City still account for a large proportion, from 40-50%.

Currently, the priority for e-retailers and parcel companies is to get one of the few available locations in zones 1 and 2.

However, logistics facilities closer to the city center also face a series of social, economic and environmental challenges such as: increased traffic volume and congestion in public spaces (kerbside space for loading and unloading); facility legality and environmental impact assessments; fierce competition for convenience and service quality; the emergence of new distribution channels and increasing complexity of goods; incorporating innovation into already complex urban supply chains...

C&W envisions a future scenario where warehouses could be built underground and trucks converted to electric, which would help address concerns from stakeholders that trucks are a source of noise and air pollution.

Urban logistics systems are the foundation for city development. Therefore, to remain competitive, attractive and environmentally friendly, cities need to engage in solutions that reduce the costs and difficulties of urban logistics.

Typically, focusing on investing in developing passenger transport infrastructure, logistics infrastructure, increasing cargo handling capacity, capacity of seaport warehouses, investing in anticipating supply chains to form a regional logistics service center. At the same time, gradually restructuring market share, prioritizing the development of market share of railway, inland waterway, and air transport to reduce pressure on road transport.

According to forecasts, Vietnam has become one of the most potential e-commerce markets in the ASEAN region with an average growth rate of 29% in the 2020-2025 period and by 2025, it is expected that the scale of Vietnam's e-commerce can reach 52 billion USD.