Industrial property is often overlooked in the dynamic and fast paced world of real estate. However it remains a vital segment under the commercial banner. Perhaps people have a tendency to cite retail and office as the main areas of commercial as their more likely to think of where they work and where they shop, as opposed to where their goods come from.
Its significance in the real estate market is not to be understated. Julie Satow of the New York Times even states that Industrial Real Estate is a leading indicator of success for the rest of commercial real estate. Put simply, when consumers have a demand for certain goods, production and inventory storage must follow which is a precursor to hiring more staff and opening offices to grow the business commercially.
In many parts of Asia, industrial property is a segment with substantial potential. This is especially true in Vietnam, where the country has seen a large influx of foreign investment in the industrial sector due to:
- Low labour costs (almost half of China)
- Affordable cost of investment: land price, sea freight
- Favourable corporate income tax
- Pro-active in trade agreements: AEC, FTA with EU, Korea
Whether investing or looking to get involved in industrial real estate for other purposes, it’s important to determine the differences between the various types of property in this field. Let’s have a closer look:
Manufacturing Plants/Fabrication Facilities
Factories where goods are assembled and produced is perhaps the most common thought when it comes to industrial property. Some factories are of significant size with heavy production and some are small and used mainly for assembly. Some are labor heavy to make goods, some use more robotics and automation to make the goods and some use a balance of both. Both large and small factories generally consist of less than 20% office space.
When it comes to manufacturing plants, companies still must decide exactly what type of operation they wish to run. For example:
Ready-Built-Factories: RBF’s can provide tenants flexibility on investment and financing as well as growth opportunities to prepared land as their business expands. They also benefit companies who want to enter the market quickly and start operations as soon as possible.
Built-to-Suit Factories: are generally larger buildings, and designed for the tenants' specific needs. The process is lengthier and more commitments are required by both parties in terms of capital, time and effort. The tenant benefits from a more tailored solution but leases are longer, typically 10 to 15 years, in order to permit the landlord to recoup its investment over the duration of the lease term.
These are buildings where items for distribution are stored. It serves as storage for products from the manufacturer to the distributor before they are sent to their various retail destinations. Therefore, location is of utmost importance here – how close is the facility to surrounding air and sea ports? Manufacturing companies, third-party distributors and retail stores use distribution warehouses as the benefits of time-saving, money-saving and peace of mind bring ease.
Private warehouses are used more for storage purposes than distribution e.g. cold storage for perishable items. They are owned and managed by manufacturers and built near their production units. They are generally smaller in size to their distribution counterparts. Users of these facilities benefit from a degree of control but it can be costly in the short-term due to its fixed size and cost.
Flex Space (Office/R&D/Showrooms/Warehousing)
Flex industrial buildings are designed to fulfill multiple needs of the building tenant. Often referred to as ‘hybrid’ space, these buildings can contain some or all spaces from office space, retail showrooms, warehouse and distribution, and R&D. Many R&D buildings are occupied by tenants in hi-tech, electronics or biotechnology, therefore ‘flex’ space is appealing as it offers a wider range of uses in one place. Typically flex spaces will have lower ceiling heights and a higher proportion of office space than in pure manufacturing and warehouse buildings, ranging anywhere above 40%.
Used for companies in the Hi-Tech industry, these spaces must have electrical switching, uninterruptable power supplies, backup generators, ventilation and cooling systems. They are close to major power supply and communication lines to support extensive servers and the buildings have a strict emphasis on security to prevent unauthorized access to information. With regard to ceiling height, the higher the better in data centers. The space above the cabinets accumulates rising heat and minimizes it by mixing with cold air. In Vietnam, we also see data centers find their home in industrial spaces, such as the case with FPT Data Center in Tan Thuan Industrial Parks ‘e-office’ segment of the industrial zone.