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Renting Factories and Warehouses in Today's Economic Climate

27 September 2024

The economic climate in Thailand for 2024 is marked by a robust recovery following the global disruptions of recent years. While the World Bank has slightly lowered its growth forecast for 2024 to 2.4% due to weaker exports and public investment, it expects growth to rebound to 2.8% in 2025.

 

As the country emerges as a prominent player in Southeast Asia’s industrial landscape, factors such as increased foreign direct investment, the growth of the e-commerce sector, and a strategic focus on enhancing logistics and supply chain capabilities are reshaping the industrial real estate market. The Thai government’s supportive policies and initiatives aimed at boosting manufacturing and logistics capabilities further contribute to a favorable environment for businesses.

 

In this context, renting factories and warehouses has become increasingly relevant as companies seek to capitalize on Thailand’s strategic location. The dynamics of the rental market are influenced by demand, driven by both domestic and international businesses looking to establish operations in the region. This article delves into the current landscape of renting factories and warehouses in Thailand, with a keen focus on economic trends, rental statistics, and market forecasts impacting this sector.

 

Current Rental Rates for Factories and Warehouses in Thailand

The average asking rent for ready-built warehouses in Thailand saw marginal growth in early 2024, reaching 159.3 THB per square meter per month in the first quarter. This represents a 0.79% quarter-on-quarter increase, as reported by JLL. Other reports in 2023 indicate that rental rates for multiple-user factories are expected to rise by 4-6%, while warehouse rentals are projected to grow by 3-5% in 2024.While the overall market experienced this slight uptick, higher than average rates were observed in specific areas, indicating regional variations in demand and supply.

 

How Have Rental Rates Changed Over Time?

Historically, rental rates have shown resilience, with moderate increases of 2% observed over the last 8 years. The robust economic recovery and increased foreign direct investment have contributed to a more competitive rental market.

Regional rental rates differ slightly, with variations spanning from 100 to 161 THB per square meter. Here are current average rates:

  • Bangkok Metropolitan Region (BMR) and Eastern Economic Corridor (EEC): 161 THB per square meter per month
  • Central region: 147 THB per square meter per month
  • Other areas of Thailand: 100-107 THB per square meter per month

 

For a more in-depth look at Bangkok read our Bangkok Warehousing 2024 Article.

 

What Factors Influence Rental Rates?

Factors influencing rental rates include economic conditions, demand for logistics space, and the overall industrial growth within the region. For instance, the ongoing expansion of e-commerce and logistics sectors has driven demand, with e-commerce projected to grow 13.7% and logistics at a compound annual growth rate (CAGR) of 6.24–6.37% in 2024, thus affecting rental prices.

 

Occupancy Rates in Factories and Warehouses

The supply of general warehousing space in Thailand is forecast to increase at an average annual rate of 5.3%, but this is expected to lag behind demand growth, pushing occupancy rates to around 86-87% during 2024 and 2025. According to a recent report by Krungsri Research, players in the market have accelerated investments in both the expansion and upgrading of existing sites and the construction of new warehouses to accommodate this demand. This trend is particularly notable in the development of modern built-to-suit premises, which are designed to meet the requirements of automated inventory systems and minimize the risk of unleased properties.

 

Several key players are leading this expansion. Kerry Logistics (Thailand) is expanding its operations on the Bang Na-Trat road and upgrading its facilities in the Eastern Economic Corridor (EEC) to better handle the import needs of European and Chinese electronics. Charlie Top Logistics is constructing a 22,000 sq.m. site near Laem Chabang Port, expected to open in 2023. Frasers Property Industrial Thailand is also contributing significantly by expanding its built-to-suit facilities in Samut Prakan, with a new 11,000 sq.m. site designed according to LEED green-building standards. Similarly, WHA Corporation is increasing rental space at the WHA Mega Logistics Center in Samut Prakan. As a result of these expansions, the total supply of warehousing space grew by 8.1% year-on-year to 6.3 million sq.m. in 2022, and the occupancy rate rose from 84.6% in 2021 to 85.9% in 2022.

 

For Frasers Industrial, this broader market trend is reflected in their performance. As of 9MFY2024, the average occupancy rate for their industrial properties is 88%, a slight decrease from 89% in 2023. However, the total leasable area has increased 3.62 million square meters, highlighting a resilient market position amidst competitive pressures. This stability aligns with broader industry trends, where demand growth continues to outpace supply in key areas, supporting an overall positive outlook for occupancy rates in the coming years.

 

Overall, the Thai warehousing sector remains on a growth trajectory, driven by strategic investments and sustained demand, despite some fluctuations in occupancy rates due to increasing supply.

 

What Are the Implications of High Occupancy Rates?

High occupancy rates indicate strong demand for warehouse and factory spaces, which can have several implications for the market. First, increased demand often leads to greater competition among tenants, allowing landlords to raise rental prices, especially in high-potential areas like the BMR and the EEC. As occupancy rates approach 86-87% in 2024 and 2025, landlords are more likely to invest in property improvements, such as upgrading to modern, tech-enabled warehousing solutions. These investments not only enhance the market's appeal but also cater to tenants seeking greater efficiency and lower operational costs. Additionally, higher occupancy rates can prompt landlords to expand their existing facilities or develop new ones, further contributing to the overall growth of the industrial real estate sector.

 

How Does Occupancy Rate Affect Rental Agreements?

Occupancy rates play a crucial role in shaping the terms of rental agreements. When occupancy rates are high, as forecasted for 2024 and 2025, landlords gain leverage, allowing them to offer less favorable terms to tenants. This could include shorter lease durations, fewer concessions, or higher rent escalation clauses. Conversely, lower occupancy rates provide tenants with more negotiating power, potentially leading to longer lease terms, rent discounts, or more flexible conditions. Moreover, in a high-occupancy market, landlords may prioritize long-term contracts with stable tenants over short-term agreements, thereby securing steady income and reducing the risk of unleased properties. This trend is particularly evident in modern built-to-suit premises, where long-term leases are preferred to ensure a stable return on investment.


Future Projections for the Rental Market 

Thailand's industrial real estate market is projected to grow steadily through 2025, driven by infrastructure development, government incentives, and e-commerce expansion. Demand for general-purpose warehousing is expected to grow at an average rate of 5.6% annually, supported by the forecasted economic growth of 3.6% in 2024 and 3.4% in 2025. Supply will increase at a slower pace, leading to higher occupancy rates, projected to reach 86-87% by 2025. This growth will be bolstered by investments in both built-to-suit and ready-built facilities to meet dynamic market needs.

 

What Are the Key Drivers for Future Growth?

Key drivers include the sharp rebound in tourism, which will boost consumption and support growth in domestic manufacturing. The rise of e-commerce is driving demand for modern logistics and distribution facilities. Additionally, investments in smart warehousing technologies and government initiatives like the EEC are positioning Thailand as a critical logistics hub in Southeast Asia.

 

How Should Businesses Prepare for Market Changes?

Businesses should prepare for increasing competition and rising occupancy rates by adopting flexible strategies. Investing in tech-enabled warehousing solutions will help optimize operations and reduce costs. Given the projected growth in demand, companies should also consider locking in favorable long-term leases and exploring opportunities in high-potential areas like the EEC to capitalize on infrastructure improvements.

 

Summary

Thailand's economic outlook for 2024 indicates a competitive rental market for factories and warehouses, with stable or increasing occupancy rates and upward pressure on rental rates. Businesses planning to rent industrial space should assess market trends, regional variations, and their operational requirements to make strategic decisions.

 

Frasers Industrial can support businesses in navigating this dynamic landscape, offering a range of factory and warehouse solutions tailored to their needs. With an average occupancy rate of 85.8% in 9MFY2024 and substantial leasable area, Frasers Industrial is well-positioned to provide reliable and strategic industrial real estate options.

 

 

https://www.krungsri.com/en/research/industry/industry-outlook/logistics/warehouse-space/io/io-warehouse-2023-2025

https://www.statista.com/statistics/1272386/thailand-average-monthly-rent-of-finished-goods-warehouses/

https://thethaiger.com/thai-life/property/real-estate-market-trends-in-thailand-2024-to-2025

https://content.knightfrank.com/research/2769/documents/en/thailand-market-2023-2h-2023-11059.pdf

https://www.worldbank.org/en/news/press-release/2024/07/03/secondary-cities-vital-for-thailand-s-economy-as-world-bank-projects-2-4-growth-for-2024#:~:text=Gross%20domestic%20product%20is%20projected,investment%20early%20in%20the%20year.

https://research.jllapsites.com/appd-market-report/q1-2024-logistics-industrial-thailand/

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