Investment pledges for the Philippine transportation and storage sector grew almost ninefold to P37.5 billion in 2020 as demand for highly specialized cold storage for COVID-19 vaccines increases
KMC Savills in a report said the outlook of the industry is geared towards the increased need for warehouses, distribution centers, and industrial lots that can support different business operations in the country and on a global scale
E-commerce will also continue to drive logistics leasing demand in 2021 as the pandemic accelerates the shift to omnichannel retailing
The impact of the “China Plus One” strategy, prompting countries to diversify and regionalize manufacturing activities that have supply chains interconnected with China, also favors the logistics and industry real estate sector
Investment pledges for the Philippine transportation and storage sector grew almost ninefold to P37.5 billion in 2020 as demand for highly specialized cold storage for COVID-19 vaccines increases, according to a report by real estate and brokerage firm KMC Savills.
At the onset of the pandemic, industrial and logistics properties have been the most sought after asset class, KMC said.
“The sector taps into the rapid growth of online retail, while cold-chain storage and warehouses have been gaining traction amid the country’s procurement and importation of COVID-19 vaccines,” it added.
Moreover, despite the country sinking into deep recession, the local warehousing and logistics industry continues to be the “saving grace” of the Philippine economy, KMC said.
It noted that transportation and storage remain an important factor in the growth of the economy, consistently accounting for around 4% of the Philippine gross domestic product.
As the Philippine real estate industry continues to navigate through the post-pandemic setup, KMC said the outlook of the industry is geared towards the increased need for warehouses, distribution centers, and industrial lots that can support different business operations in the country and in a global scale.
It said regional logistics and warehousing will be a major catalyst for the sector’s growth in the long term.
E-commerce will also continue to drive logistics leasing demand in 2021 as the pandemic accelerates the shift to omnichannel retailing.
“Last-mile delivery facilities are in line with the expansion of e-commerce and the expectations of an increasingly sophisticated market,” KMC added.
Although e-commerce in the Philippines accounts for only roughly 1% of total retail sales, COVID-19 has unleashed its untapped potential. Revenue in e-commerce market is projected to reach US$4.4 billion in 2021, the report said.
Moreover, demand for highly specialized cold storage for pharmaceuticals, particularly vaccines, is also expected to drive the sector.
Under the Philippine Cold Chain Industry Roadmap 2021-2023, the target is to increase cold storage capacity in the country by 10% to 15% annually.
In terms of space demand, 63% of warehousing demand is in the National Capital Region (NCR) where most warehouses are already occupied due to the increasing need for fulfillment centers of e-commerce and 3PLs. This is also because 3PLs prefer warehouses near customers to reduce the cost of servicing last-mile deliveries and to manage the increasing required service level and delivery lead time.
Available supply in NCR is only 14%, so there is an opportunity to convert existing facilities into vertical warehouses to address the demand-supply gap, said the paper.
Much of the available warehouse supply is in South Luzon (69% supply against demand of 17%) and North Luzon, where supply is currently at 14% against demand of 11%.
Thus, future supply expansion will be in South and North Luzon where most manufacturing companies are located and where there is available land for development, the report further projects.
Demand for warehousing is also increasing in the Visayas and Mindanao as e-commerce expands to untapped markets. However, growth of the sector in provincial areas might be slow due to the absence of quality supply options that meet stringent specifications of e-commerce companies. Current demand in Visayas is 4% with supply at 2%, while Mindanao demand is currently at 4% with zero supply.
There remains sufficient industrial land, except in the NCR, and construction costs are still stable, said the report.
E-commerce/3PL size requirements will vary from 100-square-meter fulfillment centers to at least 20,000-square-meter sortation centers.
Aside from e-commerce and procurement of COVID-19 vaccines, other factors are favoring the logistics and industry real estate sector, including the impact of the “China Plus One” strategy.
This is prompting countries to diversify and regionalize manufacturing activities that have supply chains interconnected with China. Manufacturers have been considering setting up shop in Southeast Asia to circumvent tariffs and increasing Chinese labor costs.
Meanwhile, supply chain disruption brought upon by the pandemic has led companies to reassess and strengthen supply chain resilience by expanding production and sourcing, which can translate to warehouse space demand. – Roumina Pablo