The new model for industrial estates in Thailand amid changing

In recent years, unsteady property sales have led industrial estate developers in Thailand to join the warehouse businesses in order to generate steady cash flow steams. At the same time, warehouse entrepreneurs are interested to join the industrial estates business as to create advantages from land ownership. Warehouse businesses help expand business portfolios for industrial estates as the two enterprises share the same customer base. The prospect of one-stop service will enhance business competitiveness especially in the Eastern Seaboard area where only a few developers are currently operating and where the prime locations for foreign investors are.

In recent years, industrial estate developers in Thailand have started to join the warehouse businesses due to the instability of land sales. At the same time, many warehouse entrepreneurs are interested to join the industrial estates business to gain advantages from land ownership. During the past five years, the sales of land in industrial estates have been rather unsteady (Figure 1). Typically, around 60-80% of revenue in an industrial estate comes from the sales of land. When sales decline developers can only gain revenue from electricity and water supply. As a result, developers have taken up establishing warehouse businesses to help generate steady cash flow streams. In addition, warehouse businesses can benefit from property funds and REITs, which tend to shorten the time required to reach the break-even point from 8-10 years to 2-4 years. This compensates for the fact that warehouse businesses have an Internal Rate of Return (IRR) of 15-20%, a rate lower than that of industrial estates, which have an IRR of 25-30%. At the same time, warehouse entrepreneurs have also been interested to join the industrial estates business as to seize advantages from land ownership.

In addition to providing steady cash flow, warehouse businesses also help expand business portfolios for industrial estates as the two enterprises share the same customer base. Industrial estates mainly target foreign manufacturers and traders, who usually look for warehousing within a distance of 20-30 kilometres. This makes it easier for developers to rent out warehouses on their land.

The integration of these two business models will enhance business competitiveness as a whole from the prospect of one-stop service especially in the Eastern Seaboard area where only a few developers are currently operating and where the prime locations for foreign investors are. In the future, it is expected that the sales of land in industrial estates will be coupled with warehouse sale/rental or warehouse management service in an attempt to generate steady revenue throughout the clients' manufacturing process. This business model is already available in the US, with industrial parks there offering land, warehouses, and logistics management throughout the production chain. EIC expects that players in Eastern Seaboard area will deploy a one-stop service strategy to strengthen their competitiveness as there are a few developers within the area. Moreover, it is highly likely that the area will continue to attract future FDI (Figure 2), benefiting from the launch of Phase 2 of the government's eco-car project. Combined with the BOI's new investment promotion policy that approves investment promotion according to business type instead of location, investors will prefer to have their factories located closer to existing production chains as they will no longer receive investment incentives in Zone 3¹ provinces².

¹Zone 3 comprises 59 low income provinces.

²Except investment in 20 provinces with the lowest per capita income, as designated by BOI.

Industrial estate developers will increasingly be attracted to the warehouse business model in order to keep up with changing circumstances. It is expected that the market will see more cooperation between industrial estates and warehouse operations, especially in built-to-suit warehouses, for which industrial estate developers will require the expertise of warehouse entrepreneurs. Warehouse entrepreneurs are likely to deploy merger and acquisition (M&A) strategies to pair with industrial estate businesses, especially in prime locations that attract FDI, such as Eastern Seaboard (Figure 2). However, land acquisition is likely to be challenging as most land is already owned by industrial estate developers.