Warehouses play a critical part in the logistics area as they are equipped with storage systems that can accommodate physical products in bulk for a specific period of time. Since warehouses are usually utilized for keeping a large number of items, they have a significant impact on the workflow of an entity.
Effectively-operated warehouses can assist businesses in handling tasks such as sorting, labeling, or other activities. Moreover, storage service would also tackle problems of a firm related to cost, for example, labor cost or cost optimization, or even enhance the economy’s scale and technological integration.
When the development of e-commerce platforms reaches a booming period, the Vietnam warehouse market will experience a strong evolution.
The main operation of e-commerce companies is providing platforms for trading activities. This means that they act as an intermediary between the seller and the buyer. When customers order items through an e-Commerce platform, the business has responsibilities for picking up packages from suppliers, then transferring them to warehouses and finally delivering them to customers. The process requires the existence of a wide range of storage facilities.
According to some recent reports, the e-commerce market in Vietnam could earn $52 billion USD in revenue. The more consumers use e-commerce as their main form of shopping, the greater the demand for the development of the warehousing market. Therefore, the Vietnam warehouse leasing market will expand remarkably with a forecasted growth rate of 11%.
However, the warehouse industry in Vietnam has a need for transformation, not only providing space for goods in bundles but also introducing solutions for supply chain and logistics.
The trend of developing and implementing innovation in technology in warehouses for leasing in Vietnam will be the highlight in the coming years, especially when the growth of cross-border trading is at high speed.
Besides the application of technology, the storage facilities tend to be manufactured for sustainable development. The whole world is facing severe environmental issues, and logistics activities contribute to the pollution of the environment.
As one of the primary polluting factors, the regulations and policies for the Vietnam warehouse leasing market will be much stricter to sustain the general purpose.
With some of the key highlights, Vietnam warehouse leasing service providers should concentrate more on emerging segments like e-commerce and cold storage.
Top challenges when investing in Vietnam warehouse leasing market
The fast-growing market of Vietnam warehouse leasing will come with many challenges from both external and internal elements. In addition to the factors to consider in warehouse leasing in Vietnam, it is necessary to investigate current issues in the market for future development.
The solutions to those problems need to be discovered to fulfill the demand for high-quality warehouse or factory leasing in Vietnam.
Location plays an important role in any aspect of the economy, especially when a company is operating in the logistics industry. The location of the warehouse is a critical element in determining the convenience and effectiveness of the whole process, from storing products to delivering them to customers.
Currently, there are only a small number of logistics centers that are located near industrial zones. As a result, the costs, in particular transportation costs, will increase significantly, and it will affect the performance of the company. Therefore, the need to build new warehouses and storage facilities near main cities like Hanoi, Hai Phong, Da Nang, Ho Chi Minh City and others will increase in the near future.
The major problem related to warehouse leasing costs in Vietnam is that the logistics costs are much higher than in other countries in Asia, for example, Thailand, China, and Malaysia, which stand at 6% to 12% higher. The cost will be a disadvantage, which can reduce the competitiveness of the whole industry and will impact the price of finished goods.
It is estimated that in the operation of a warehouse, labour costs account for 65% of the total budget. The main reason for the high labor cost is that the demand for professors exceeds the availability of experts because, in Vietnam, there are not many places that provide in-depth training in this field.
Another reason that concerns the cost of Vietnam warehouse leasing is that most businesses are not aware of the role of each type of warehouse, like primary warehouse, secondary warehouse, and central central warehouse. Therefore, it leads to a high cost for the warehousing operation and a high logistics cost in total.
The logistics workforce in Vietnam are not only insufficient in quantity, but also in quality. The demand for experts at the management level who are capable of applying and deploying to assigned tasks is fairly high. Up to 93-95% of employees in domestic enterprises are not formally trained, and the majority of them are solely responsible for small parts of the supply chain, such as forwarding, warehousing, and bill of lading processing.
This has a significant impact on both the quality of service and the profitability of the company. As a result, the lack of competent human resources is preventing the industry’s development.
Currently, there is no appropriate logistics training program to provide a high-quality labor force. In reality, in Vietnam’s logistics industry, human resources are primarily self-trained based on their own experiences, with a low degree of professionalism.
Furthermore, in the case of a market boom, logistics companies will face a scarcity of skilled human resources as a result of the danger of globalization or the formation of their own joint ventures.
Additionally, despite the fact that the government has implemented a number of ground-breaking regulations to assist and create good conditions for the growth of the Vietnam warehouse leasing and logistics industry, many enterprises say there are still numerous disadvantages.
For example, import and export policies, as well as customs clearance of goods, are highly rigorous, creating a lot of obstacles, while the guiding edict remains ambiguous, confounding new enterprises and slowing the industry’s development.
Despite the drawbacks, Vietnam is still one of the up-and-coming contenders competing with China
The substantial predicted rise in demand indicates potential development of the warehouse leasing industry in Vietnam. Vietnam’s high population growth rate, high urbanization rate, rising internet shopping trend, and quick middle-class expansion have resulted in increased demand for qualified warehouse leasing services to meet the customers’ requirements.
As reported recently, e-commerce in Vietnam will increase by 16%, earning a value of more than 14 billion dollars. In the period of 2020–2025, the average growth rate would be 29%, with e-commerce in Vietnam achieving USD 52 billion at the end of 2025.
Logistics and warehousing are crucial when products are delivered across the country or they are even shipped to other countries in the world.
The warehouse industry in Vietnam has the potential to grow due to the following factors:
– Good connectivity among different regions in Vietnam
– Modern technologies are implemented effectively to support logistics services.
– FTAs encourage the connectivity between Vietnam and other countries.
In the future, to take advantage of post-pandemic development prospects, foreign investors will continue to invest in Vietnam’s logistics industry. The influx of international funding to Vietnam will aid in the country’s transformation into a global logistics hub.
Best Express Vietnam recently announced that the company has spent $20 million in commodities sorting centers in Bac Ninh and Ho Chi Minh City. In 2022, this company wants to invest an extra $3 million on improving its transportation infrastructure in order to expand to 1,500 offices across Vietnam.
Meanwhile, the SLP Park Xuyen is being constructed by SEA Logistic Partners. A project aimed at supplying warehouses in the Long An province in the Mekong Delta. This project, which will span an area of 84,000 square meters, is expected to be finished in the first quarter of 2023.
According to a MoIT assessment on the logistics business, Vietnam has 30,000 logistics service providers, with Vietnam warehouse leasing service being one of the most important categories of Vietnamese logistics enterprises.
Some of the available warehouses for rent from Savills Industrials
Savills Vietnam has established a full-service industrial real estate portal. As the need for the Vietnam warehouse leasing market grows, so does the demand for warehouse rental services. Several real estate websites with a wide selection of warehouse leasing information of varied sizes, characteristics, and prices make it simple to get information about warehouse renting.
Recognizing the trend of warehouse leasing service, Savills Industrials Vietnam provides numerous industrial land for warehouse leasing in different areas across Vietnam. For example:
– Industrial land for lease in Vinh Phuc, which has a total area of 295 ha with excellent features.
– Warehouse for lease in Long Bien, Hanoi with a vacant area of 4,400 m2.
– Warehouse for rent in Hai An District, Hai Phong City, with a total area of 126,000 m2.
– Industrial land for lease in HCMC with a total area of 311 ha.
Although the Vietnam warehouse leasing market has to face many challenges, it is expected to be a profitable industry that can generate billions of dollars in revenue in the upcoming period. Due to vast investments from foreign investors to promote the development of the industry, Vietnam will become the most dynamic logistics center in the world.
Savills Industrials recognizes the need to find a great-condition warehouse for rent and always provides appropriate strategies and solutions, as well as reasonable measures to ensure that investors are satisfied with the transaction.
Savills Industrials Vietnam, one of Savills’ best industrial real estate offices, provides bespoke lease and investment advice to occupiers, developers, and investors. Savills Industrials aims to provide reliable advice, investment assistance, and industrial consulting services.
Download our full report: Industrial Insider Q1 2022