Manufacturing and logistics sectors in Indonesia and Vietnam are set to experience substantial growth, projected at up to 20% over the next three years. This outlook emerges as businesses increasingly focus on building resilient supply chains in response to evolving geopolitical landscapes, rather than merely reacting to short-term tariff fluctuations. According to Knight Frank’s Horizon Report, the shift from “Whiplash to Resilience” in corporate real estate reflects a broader trend among multinational companies, particularly those from mainland China, Japan, and South Korea, redirecting investments into Southeast Asia under the “China+N” strategy.
This strategy allows firms to tap into cost-efficient, purpose-built industrial facilities, enabling diversification of supply chains while mitigating risks associated with dependency on Chinese manufacturing. The ongoing transformation reinforces the necessity for businesses to evolve their real estate strategies, prioritising operational durability and total-cost performance over mere footprint expansion.
The temporary suspension of high tariffs—previously soaring to 145%—on the Chinese mainland has injected a layer of uncertainty into the relocation decisions of companies. Amid these fluctuating tariff scenarios, there is a marked increase in demand for flexible leasing options and adaptable logistics parks, which allow for quick response to changing conditions. Tim Armstrong, global head of occupier strategy and solutions at Knight Frank, remarked that while the short-term reductions in tariffs offer some reprieve, the fundamental change in corporate real estate practices calls for new methodologies in portfolio planning and location strategy.
Christine Li, head of research for Asia-Pacific at Knight Frank, notes the acceleration towards an ‘Asia for Asia’ model which underlies the demand for industrial spaces in countries like Vietnam, India, and Indonesia. Over 65% of supply chain investments are now catering to intra-Asian consumption, thus reshaping the industrial landscape. For instance, Indonesia is expected to see a notable 15% to 20% growth in manufacturing-related real estate demand, driven particularly by sectors such as electronics and automotive.
Vietnam, often viewed as a key beneficiary of the “China+N” diversification strategy, is anticipated to witness a similar increase in demand for manufacturing space, particularly from large e-commerce companies from the Chinese mainland. This burgeoning interest is pivotal, especially as Vietnam seeks to balance its growth amid external challenges, such as exposure to US tariffs that have previously impacted its trade dynamics. However, the nation’s industrial market is not without its challenges; as reported, factory closures and layoffs in competing sectors highlight the urgent need for protective industrial policies to shield local manufacturers from the influx of low-cost imports from China.
The regional landscape is further complicated by rising industrial vacancy rates in key Chinese cities, intensifying focus on domestic consumption as the primary driver of industrial space absorption. Given these dynamics, Knight Frank’s Global Corporate Real Estate Sentiment Index (GCRESI) illustrates the shifting perceptions within corporate real estate strategies, showcasing how companies are adapting their operational plans amidst potential market disturbances.
In response to the new realities of trade policy and economic volatility, the report outlines essential strategies for navigating the complexities of the current environment:
- Embrace flexible lease structures: Shorter lease terms are becoming the norm, giving companies adaptability in uncertain times.
- Prioritise purpose-built facilities: Developments tailored to specific operational requirements are gaining prominence over speculative projects.
- Pursue regional self-sufficiency: Companies are increasingly creating redundancy within their operations to mitigate risks associated with global supply chains.
- Design for operational resilience: Investment in facilities that can adapt to changing needs is becoming essential for long-term viability.
- Integrate scenario planning into decision-making: The ability to pivot strategies based on evolving trade conditions is crucial for consistency in operations.
Ultimately, the corporate real estate landscape has evolved into a crucial component of operational resilience. Companies that strategically adjust their real estate approaches are likely to maintain a competitive edge in a fluctuating global economy.
This emphasis on adaptability and resilience underscores the necessity for businesses in Southeast Asia to not only respond to immediate market conditions but to reconsider their long-term operational frameworks in an increasingly interconnected and unpredictable world.
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Source: Noah Wire Services
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