3 Types of Industrial Real Estate Properties That Will See Continued Growth in 2021
Real estate can be a tricky business. This is even more true when discussing industrial real estate. While the very term conjures up images of permanence, it may be one of the more unpredictable areas businesses could invest in.
The global economy now moves at a speed that makes it difficult to accurately predict the future value of any real estate investment, let alone ones that are tied to the state of specific technologies and practices. To add to this, basic supply and demand, geopolitics, and still-unseen yet globally relevant factors all make industrial real estate investment something reserved for those with nerves of steel.
Every so often, however, golden opportunities do present themselves — especially during unprecedented times such as a global health crisis. Below are three industrial real estate property types that have seen significant growth in the Philippines during the pandemic and are likely to continue growing through the rest of the decade.
1.) Manufacturing Facilities
While China is still “the world’s factory,” several factors have started to affect its dominance as a manufacturing powerhouse. Previously, its low average labor costs, geographic position, and well-optimized supply chain had made it a favorite manufacturing location for businesses the world over.
In the past decade, however, China’s manufacturing prowess has slowed down. Many investors have already left the country or have scaled down their operations over a host of different concerns, chief among which are the rising costs of labor in the country.
Of course, China’s loss is their neighbors’ gain — including ours. The Philippine manufacturing sector is already seeing an increase in investment. Many of these investments are in “high-value manufacturing”, mostly within the country’s several economic zones.
However, Chinese investment losses are not the sole source of continued and projected growth in the manufacturing sector. The current administration’s push for more infrastructure development has also created several opportunities for local manufacturers. If these infrastructure projects bear the fruit that they’re expected to, this is likely to drive even more demand for manufacturing facilities as well.
2.) Warehouses and Distribution Centers
If there is one good thing to have come out of the pandemic, it’s that many Filipinos found themselves taking a long-overdue crash course in e-commerce.
With traditional retail almost brought to a standstill, the demand for goods of all kinds remained. Additional investment by local businesses in e-commerce infrastructure such as warehouses and distribution centers surged as a result.
Filipino businesses were not the only ones who had to adjust. Many normal Filipinos who were previously resistant to buying online finally made the leap, and most of them aren’t turning back after the COVID-19 pandemic is done. The social distancing demands of the pandemic finally allowed many regular Filipinos to experience the convenience of shopping online for themselves, and it’s a convenience many will be unwilling to give up.
3.) Data Centers
Of course, to handle the rising demands of e-commerce and other online activities, data centers have had to keep pace. The past year has seen the demand for data centers surge, mostly due to ecommerce. Hosting giant Alibaba Cloud, for instance, is likely to start building its first data center in the country by year’s end. Converge ICT, a local internet provider, has likewise committed to building a billion-peso data center in Cebu.
Because data centers are so expensive to build, they are generally only set up when strong demand for data hosting is expected. These commitments by local and domestic firms demonstrate that—despite or because of the pandemic—most businesses predict the demand for data hosting to keep rising.
This is likely to be a fair assessment. Filipinos are spending more time online than ever before, often on activities that require significant amounts of data bandwidth. The sheer number of Filipinos shopping online, streaming HD content, making Zoom calls, and mining cryptocurrencies is only going to continue driving up the demand for data center facilities, and we’re not likely to see a slowdown in this area any time soon.
Relatively safe investment bets like these don’t come up very often, especially not in real estate. While there was little doubt that these areas would have grown, given time, the COVID-19 pandemic has, for better or worse, given them a significant boost. Those who could get their foot in the door before the world’s economies start recovering are likely to win big. What’s more, they’re probably going to keep winning, at least, for the foreseeable future.
By Trix Mejia