Logistics, hot for investors

Published August 1, 2021, 7:00 AM

by Bernie Cahiles-Magkilat

But how to get more of them?

Logistics and transportation of Container Cargo ship and Cargo plane with working crane bridge in shipyard at sunrise, logistic import export and transport industry background

The logistics sector is the darling across class assets in the property sector, but big foreign investors will continue to be hampered by the Constitutional ban on majority land ownership by foreigners.

Christophe Vicic, country head of JLL Philippines, the local unit of the world’s leading property management and consultancy firm, said the foreign ownership restriction was the biggest challenge against the industry achieving its full potential.

“In terms of interest, foreign interest is growing for they see the Philippines becoming an important player and the domestic market is already an attraction,” he noted. But that is not enough. Ownership of warehousing facilities, which require a sizeable land, is hampering institutional investors to enter in the long term because they are limited by no more than 40 percent ownership only.

 “Even if the lease period is longer than 25 years, that is still too short for them to make long-term decisions,” he added. Despite this restriction, there is no denying that the industry is booming amid the accelerated shift to digital technology as a result of the pandemic.

Even Vicic acknowledged that MNCs are thinking of continuity planning. Big companies have to locate in one or two countries to spread the risk just in case the pandemic extends longer than expected. This makes the Philippines a very good candidate.

Volume-wise there are already 2.2 million square meters of spaces currently occupied by logistics providers. What is interesting though is that most of these warehousing facilities—80 to 85 percent—were built-to-suit and only 15 to 20 percent were speculatively built, according to Vicic.

“This is a very imbalanced market,” he noted, adding that neighboring countries, like Vietnam, have 50:50 ratio. He explained that as a property management and consultancy firm, they would push property developers for more speculative build because “we believe that speculative build will improve the quality of projects.”

In addition, he said, “We should only build Grade A warehousing with the latest technology and latest processes for ingress and egress and ensure that we do not build for a particular tenant, but possibly new tenants who would like to lease.”

The growth is also palpable with the shifting of logistics facilities to the south of Manila and in other major urban cities such as Davao and Cebu.

Metro Davao and Metro Cebu just account for 30 to 35 million of the Philippine population, which begs the need for better distribution of facilities for the rest of the country’s over 70 million population. Indeed, the logistics sector is hot for investors.

Lifting the foreign ownership restriction could further accelerate its development.