18 Oct Inflow surge breathes life into industrial land sector in Thailand
Growing foreign investment in the industrial sector has boded well for industrial parks and factories for rent but the uncertain outlook for global trade means improvements will likely be slow.
The net flow of foreign direct investment into the Thai manufacturing sector surged by 932% year-on-year, according to the Bank of Thailand.
This is positive news for the industrial property sector where there has been limited new investment in manufacturing capacity for several years. The sluggish market resulted in flat sales growth of land plots at industrial estates and parks and only a slight increase in the occupancy rates of ready-built factories for rent.
However, there has been no major increase in the demand for serviced industrial land yet, according to CBRE Research, which assumes the big increase in foreign investment in the sector has been geared toward upgrading machinery and equipment at existing facilities.
Local manufacturing investment has also grown, especially in the petrochemical sector, but again this seems to have been additions to existing plants rather than land purchases for new factories.
In any case, there is a possibility that capacity utilisation may increase to a level that manufacturers in some industries will have to build new factories, which will increase demand for both land and ready-built factories.
The escalation of the US-China trade war is a concern for world trade and globalisation in the future but Thailand may see a windfall as both multinational and Chinese companies may look at manufacturing outside of China. While Vietnam is in the strongest position to benefit from the trend, Thailand also counts as a strong candidate.
Alternatively, free zones could further enhance Thailand’s appeal. Such areas in industrial estates and parks allow manufacturers to get exemptions from not only value-added tax and import duty on materials and machinery but also export duty, making them suitable for companies which export most of their production.
Furthermore, the government has committed to improving infrastructure in the Eastern Economic Corridor, touted as Thailand’s new industrial heartland, with the expansion of roads, ports and airports. The move will encourage both Thai and foreign investment in manufacturing in the region.
CBRE expects to see land sales increase at industrial estates and parks and vacancy rates drop for ready-built factories for rent. However, this will happen slowly and is still very dependent on both the level of global and local demand for manufactured products.