Bangkok Terminal Logistics Co., Ltd.
Strategy for preparing warehouse space for expansion in 2021
The expansion of economic activities in all areas and the continuous acceleration of investment will result in a possible increase in demand for warehouse rental space in 2021.
Warehouse space preparation strategies
From the summary of Thailand’s international trade overview in 2020, it was found that imports and exports decreased in value, which may be related to the COVID-19 pandemic. However, the Economic Intelligence Center by SCB has predicted that Thailand’s export trend will return to expansion at approximately 4-5%.
And from the IMF’s global economic forecast, only China is likely to recover faster. The rest (which are Thailand’s trading partners) are likely to recover slowly.
In the next year, 2021, there will be various phenomena, including the expansion of production and trade, the growth of investment from both the public and private sectors, the emergence of new and diverse E-Commerce platforms, as well as the growth of the economies of neighboring countries, which will help support trade activities, storage and distribution of goods at the border.
From the issue of expansion of economic activities in all aspects and continuous investment acceleration, it results in the year 2021 that there may be an increase in the demand for warehouse space rental. If compared to the previous year (2016-2021), there was an average increase in the support area of 450,000 sq.m. per year, so it can be estimated that in the years 2020-2022, the warehouse space for rent will increase by 330,000 sq.m. per year or approximately 5.9% per year.
By entrepreneurs providing warehouse space for rent, customized according to customer needs, they can charge higher rent than traditional warehouses, including increasing the opportunity to generate income by providing management services, providing full services to customers, especially those who have long-term lease contracts.
Potential locations for warehouses are still areas in industrial estates, industrial zones, areas with production activities, goods transport, and along transportation routes that can be distribution points to other regions or abroad, including border provinces where border crossings connect with neighboring countries.
Locations with continuous growth opportunities and attractive investment opportunities include areas in the Bangkok and surrounding industrial zones, areas surrounding the Eastern Economic Corridor (EEC), central provinces of the region, border provinces that benefit from the development of special economic zones (SEZs), and warehouse areas where Thailand has invested in neighboring countries.
Warehouses for rent in the country are currently divided into 2 types as follows:
- Traditional warehouses account for 95% of the total number of warehouses in the country, focusing on rental space and basic utilities such as roads, electricity, water, and telephones.
- Modern Warehouse uses technology to provide services to help increase efficiency in warehouse management. There is a complete logistics system that better meets customer needs. Currently, traditional warehouses have begun to transform into modern warehouses to increase opportunities to generate income beyond just providing space rental services.
In addition, some places have improved and developed energy conservation and environmental systems, including the installation of structures that help prevent disasters, making them more desirable for tenants who are more concerned about the environment and safety.
Income generation direction of investment in warehouse space for rent
- It is a business that takes a long time to pay back, usually around 8-13 years, because the initial investment is high, including the cost of land, building construction, and other necessary infrastructure. However, the main income from rental will occur in the long term, depending on the size of the area, type of warehouse, location, and competition.
- Evaluating the potential of the location is one of the factors that determine the need for renting warehouse space. In order to be successful in business operations, it is not just about having warehouse space for rent, but also being located in a potential location.
Warehouse rental model
- Short-term lease of no more than 3 years. Most tenants are SMEs or seasonal businesses such as agricultural products and fashion. This type of lease may have risks of income uncertainty.
- Long-term lease of 3 years or more, mostly modern warehouses with complete logistics systems, good locations, potential, most of the tenants are large businesses, so they do not have to face much fluctuation in income.
Factors in choosing to rent a warehouse
When investing in warehouse space for rent, the more you meet the needs of your tenants, the greater your chances of success.
Tenants often consider location first, according to the purpose of each business, to reduce the burden of costs in terms of distance, time and transportation costs, such as:
- Located near markets or communities for distribution advantages
- Located near farms and processing plants to reduce the cost of transporting raw materials.
- Located in an industrial estate to receive investment privileges from the BOI.
In addition to location, other factors tenants consider include infrastructure, amenities, technology used to manage services, and rental rates.
Although operating a warehouse rental business will increase the opportunity to generate continuous income in the long run, don’t forget important factors such as location, warehouse formats that meet the needs of tenants, study new technologies, and create differences for the warehouse in order for the investment to be successful. Because in the beginning, a large amount of capital is required, construction takes a long time, and the payback is slow. Therefore, entrepreneurs should study all aspects before investing.
Source:
https://www.sumipol.com/knowledge/10-automation-trends-for-warehouse-2021