The rise of e-commerce fueling growth in logistics
By Subyagorn Sansugtaweesub, JLL
Logistics, including warehousing and distribution centres is the hottest sector around the world and in Southeast Asia today. The biggest driver of investor interest in the sector is the rise of e-commerce, which is taking hold in most markets around the world. In Thailand, we are seeing strong demand from foreign investors looking to grab a piece of the logistics pie. The clearest evidence to date is the takeover of TICON by Frasers Property that now holds a majority stake and are actively entering into strategic partnerships that will facilitate new growth opportunities in complementary sectors such as data centres.
The rise of e-commerce in Thailand is also fueling growth in logistics. In 2015, e-commerce sales in Thailand accounted for less than 1% of the nation's total retail sales. By the end of 2017, the e-commerce share increased to 1.9% with the total value of sales more than doubling. Estimates suggest that by 2025, e-commerce sales will account for 5.5% of all retail sales nationwide, with absolute values growing by 29% per year.
Market data indicate that e-commerce sales are driving strong demand for warehousing space. Third party logistics providers (3PLs) like DHL and Kerry Logistics are the key facilitators of e-commerce deliveries to consumers and businesses. According to public data from WHA, Thailand's largest provider of logistics space, demand from 3PLs has increased by more than 50% since 2015. In addition, e-commerce platforms such as Lazada and Shopee are beginning to lease space in logistics parks. At the same time, WHA began to breakout demand from e-commerce providers (2% of total) for the first time in early 2018.
As the e-commerce market continues to grow, with expected acceleration in manufacturing growth in high value-add industries as a result of policies and investments supporting the Eastern Economic Corridor, the logistics sector appears to be primed for future growth. We expect that existing developer / operators to continue to see healthy growth, however it remains to be seen whether or not new players will be able to overcome the duopoly in the market, whereby WHA, TICON and their related funds and REITs account for more than 70% of supply in the market.
In the longer term, we also expect the logistics sector to become an investment hotspot in Thailand. While demand for warehouse from ecommerce companies is growing, these companies are investing considerable capital in warehouse and inventory management systems, which require them to commit to longer-term leases on the facilities so they can amortise those costs over the duration of their lease. This is making the sector increasingly attractive to investors as a result.
About the author
Subyagorn Sansugtaweesub is the Head of Industrial Sales and Leasing at JLL. For more insights, readers can contact him by email Subyagorn.Sansugtaweesub@ap.jll.com
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with operations in over 80 countries and a global workforce of 88,000 as of September 30, 2018. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com