From the wealthy and developed city-state of Singapore to resource-rich and populous Indonesia, Southeast Asia presents a range of opportunities for real estate investors along the risk/return spectrum.

However, much of the region’s present appeal is linked to what it is not, rather than what it is. Southeast Asia is emerging as a manufacturing alternative or complement to China and this is being driven by rising wage costs in China and the desire of manufactures to diversify supply chains. The US-China trade war and the COVID-19 pandemic both drove home that global manufacturers cannot rely on a single location.

Chris Marriott, chief executive, South East Asia, at Savills, says: “The diversification of manufacturing will drive growth all over Southeast Asia, as countries such as Vietnam in particular, but also Indonesia and Thailand, see more foreign manufacturers set up shop.”

Vietnam has been the major beneficiary in the region of this diversification and its economy proved incredibly resilient in 2020, recording the region’s highest GDP growth of 2.9% and netting $28.5bn of foreign direct investment.

Neil McGregor, chief executive of Savills Vietnam, says: “The “China plus one” story covers all of Southeast Asia, but Vietnam has been by far the biggest beneficiary and is now moving further up the value chain, with companies such as Apple and Samsung building their kit here, which of course offers opportunities for other countries to boost their manufacturing.”

Demand for industrial and warehousing space in Vietnam is booming, no surprise as Savills Research shows it to be the cheapest market in the world for industrial and warehousing operations, based on real estate, power and labour costs. Last year, for example, Korean fund Mirae Asset-Naver Asia Growth Fund, invested US$37 million into a 13-ha warehouse near Hanoi.

Indonesia is set to attract more interest from overseas investors after the introduction of its omnibus law, described as the “biggest regulatory reform since the introduction of the Civil Code in 1847” and which contains a raft of measures which will benefit foreign investors. Major global companies such as Tesla, Samsung and Amazon have reportedly committed to expand in the country and developers are expanding their industrial and warehousing operations to match expected demand.

Thailand also saw steady demand for industrial and warehousing space throughout 2020, with demand from manufacturers and companies seeking to serve domestic e-commerce demand, something which is growing across the region.

McGregor says: “Japanese real estate investors are certainly looking at Indonesia and Thailand as well as Vietnam. These companies often follow their manufacturers so as the Japanese manufacture more in Southeast Asia they are likely to be more involved in real estate.”

Regional logistics real estate investors are also building Southeast Asia strategies. Logos has operations in Singapore, Malaysia, Indonesia and Vietnam, while logistics REIT Mapletree Logistics Trust has assets in Malaysia, Singapore and Vietnam.

Southeast Asia’s climate and landscapes make it a favoured tourist destination in normal times and also a popular location for second home buyers from Hong Kong, Singapore and outside Asia. The ongoing pandemic means there will be distressed opportunities in hospitality, however residential markets have tended to be more robust.

While many cross-border real estate investors favour markets within Southeast Asia, it is not generally regarded as a distinct market, despite the ongoing efforts of ASEAN to bring the region together. Marriott says: “The problem for ASEAN is that, while it is a clearly defined region, it does not have the trade and political links that the EU does. Free movement is difficult because of the huge range of wealth in the region and it is incredibly diverse in terms of race, religion, legal systems and culture, which means it is dynamic but hard to view as a trade bloc.”

Nonetheless, Chinese tech firms, for example, are starting to target the region and its large population. A number have been taking office space in Singapore, which is already the region’s headquarters hub and is home to a number of developers and investors which have invested in neighbouring countries. If their occupiers begin to treat Southeast Asia as a distinct region, more real estate investors may do the same in future.

Further reading:
Savills Asia Pacific Investment Guide