With lower costs, rising domestic consumption and improving infrastructure, more manufacturers are choosing Southeast Asian countries over China and this is a trend likely to continue, according to a report from JLL. This will help improve the economy in the region while also providing a significant boost to industrial property investment across Southeast Asia.
“Our top picks for investing in industrial real estate are Indonesia and Vietnam. Indonesia’s manufacturing sector is expected to grow six to seven per cent annually until 2021, up from 5 per cent in 2016, thanks to a stabilising currency and changes to economic policy. Meanwhile, Vietnam’s edge is in its young and skilled workforce, relatively low cost base, and stable political climate,” says Regina Lim, Head of Capital Markets Research, Southeast Asia, JLL
The growth in manufacturing in Southeast Asia will likely be from companies relocating from China. The country has been restructuring its economy, focusing more on domestic consumption, services and higher value exports in the past 5 years. This, coupled with rising labour and land costs, has seen more manufacturing businesses move to cheaper locations, such as Indonesia and Vietnam, notes the JLL report.
“Even as these markets experience a manufacturing boom, there are still some medium term issues to be addressed. The ability of Southeast Asia to move up the value chain will depend on the extent to which China’s costs increase. It will also hinge on the growth of domestic consumption in these markets, the quality of education, availability of infrastructure and ease of doing business,” says Lim.
Although Southeast Asia has a relatively young and educated workforce that supports continued industrialisation, countries like Thailand, Malaysia and Indonesia are underperforming when it comes to skilled labour. Policies, such as Thailand 4.0, aim to help create a skilled workforce that appeals to manufacturing companies, but it will be years before benefits are fully realised.
“Southeast Asia could potentially become the leading industrial hub in the region but its diverse economies are at various stages of development. Foreign investors and corporates need a really in-depth understanding of the landscape when planning their industrial operations and investments,” says Lim.
Receive the latest property news on email from Thailand’s No.1 property website here, or read more project reviews
