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Warehouse Space Strategy for Business Expansion in 2021

December, 25 2020

According to Thailand’s international trade data for 2020, both imports and exports declined, likely due to the COVID-19 pandemic. However, SCB's Economic Intelligence Center forecasts that Thai exports will recover and grow by approximately 4-5 percent. Additionally, the IMF predicts that China will experience a faster economic recovery, while most of Thailand’s trading partners are expected to recover at a slower pace.

By 2021, economic expansion is expected across various sectors, driven by increased production, trade, investment, and the rise of new e-commerce platforms. The economic growth of neighboring countries will further support trade, storage, and distribution activities along border areas.

With this economic expansion and continued investment, the demand for warehouse rentals is expected to increase in 2021. Compared to previous years (2016-2018), warehouse space expanded by an average of 450,000 square meters per year. From 2020 to 2022, rental warehouse space is projected to grow by 330,000 square meters per year, or 5.9 percent annually.

To meet evolving market demands, warehouse operators are increasingly offering customized warehouse spaces, allowing them to charge higher rental rates than traditional warehouses. They are also expanding into comprehensive warehouse management services, particularly for long-term lease agreements.

Strategic Warehouse Locations

Ideal warehouse locations continue to be in:

• Industrial estates and manufacturing zones
• Key logistics and cargo transport hubs
• Major transport routes for national and international distribution
• Border provinces with trade routes to neighboring countries

Key high-potential investment areas include:

• Industrial zones in Bangkok and surrounding provinces
• The Eastern Economic Corridor (EEC)
• Major regional economic centers
• Border provinces benefiting from Special Economic Zones (SEZs)
• Thai-invested warehouse facilities in neighboring countries

Types of Warehouse Rentals

There are two main types of warehouses available for rent in Thailand:

1. Traditional Warehouses (95 percent of total market)

   • Basic rental space with essential utilities such as roads, electricity, water, and telecommunications.

2. Modern Warehouses

   • Incorporate advanced technology for efficient inventory and logistics management.
   • Offer a comprehensive logistics system to better serve customers.
   • Many traditional warehouses are transitioning to modern warehouses to enhance revenue beyond simple space rentals.
   • Green energy solutions and disaster protection features further increase demand.

Revenue Model for Warehouse Investments

Warehouse rental businesses require long-term investment, with an average return period of 8-13 years, due to high initial capital costs for land, construction, and infrastructure. However, steady rental income over time depends on factors such as warehouse size, location, and competition.

A strategic location is critical in determining warehouse demand. Success is not just about owning warehouse space but choosing the right location with strong market potential.

Types of Warehouse Rental Agreements

1. Short-Term Lease (Less than 3 years)

   • Mostly used by SMEs or seasonal businesses such as agricultural or fashion industries.
   • Higher risk due to uncertain income stability.

2. Long-Term Lease (3 years or more)

   • Generally preferred for modern warehouses with full logistics capabilities in prime locations.
   • Large corporations are more likely to sign long-term leases, ensuring stable revenue.

Key Factors in Choosing a Warehouse for Rent

The more a warehouse meets customer needs, the greater the likelihood of success.

Tenants primarily consider location, based on their operational needs, to minimize transportation costs and delivery time.

• Warehouses near markets or urban areas: Provide a distribution advantage.
• Warehouses near farms and processing plants: Reduce raw material transportation costs.
• Warehouses in industrial zones: Benefit from BOI (Board of Investment) incentives.

Other important factors include utilities, facilities, technology, and rental rates.

Although warehouse rentals offer long-term revenue opportunities, business owners must carefully evaluate factors such as location, modern features, and differentiation to succeed. The high initial investment and long construction period require thorough market research and strategic planning before investing.