Urban logistics real estate is receiving a great deal of attention from investors, according to a report from Cushman & Wakefield released on February 29.

Its report noted that this new field is often confused with the logistics city model, but the concept is quite different. Logistics city can be understood as an urban model associated with the development of logistics services as a key economic sector.

Normally, logistics city will be associated with an important type of infrastructure serving logistics services, such as international seaports and international airports. Urban logistics is urban-centric, serving mainly consumer needs in cities.

Currently, due to expensive land costs and opposition from stakeholders to logistics activities in the city, urban logistics projects are mainly located in the city-fringe or suburban areas.

According to data from Cushman & Wakefield, Vietnam’s southern key economic region has a total warehouse supply of about 5.5 million sq m of floor space, of which Ho Chi Minh City accounts for about 14 per cent of total supply. The northern key economic region, meanwhile, has a warehouse supply of about 2.2 million sq m of floor space, of which Hanoi accounted for 12 per cent of the total supply and the port city of Hai Phong 26 per cent.

Urban delivery costs are also increasing, reaching 50 per cent or more of total supply chain costs. Therefore, e-commerce investors are eager to acquire logistics real estate that can reach the inner city within a 30-minute drive. This is also the top priority of developers to increase their competitive advantage.

Retail logistics real estate is usually rectangular, with an area from 3,000 sq m to 7,000 sq m, with five docks for pickup trucks. The floor is raised to the height of a truck, the ceiling is 6 meters high, and there is a spacious area for parking and waiting.

Real estate for 3PL (Third Party Logistics) and parcel companies requires land with a narrow length, an area from 5,000 to 7,000 sq m, with five doors for pickup trucks. The are also many side doors on both sides of the building for trucks to park outside, while doors for trucks are also lined up inside, and the ceiling height is 6 meters.

In Ho Chi Minh City and Hanoi, the scarcity of available land funds and logistics facilities forces developers to take advantage of many different types of real estate, often old buildings or vacant land. Older buildings have higher risks and are less efficient for activities such as unloading and storing goods.

However, logistics warehouse locations near inner-city delivery points are still a top priority for 3PL companies, e-commerce retailers, and parcel companies. In some cases, these old buildings are refurbished to relatively better quality, helping service providers deliver goods quickly.

By 2050, the urban area of Ho Chi Minh City is estimated to have 28-30 million people, with an urbanization rate of about 90 per cent. Higher urban density means greater obstacles to logistical land use. There is currently a large gap between the required urban logistics space and the actual amount, and closing this gap requires investing time and capital to address barriers to operating logistics services in cities.

Local governments and investors need to strategize for the “urban spatial model”, and quantify the total demand for urban logistics space in leading e-commerce markets in Vietnam based on current and future online sales volumes.

This method also calculates the ratio of truck volume per sq m of urban logistics, and e-commerce revenue statistics such as amount spent per consumer and average number of parcels per order, based on two different truck utilization strategies: truck space optimization (primarily 3PL) and prioritize delivery speed (mainly e-retailers).

Ho Chi Minh City currently has 9,600 businesses registered in the logistics service industry (accounting for 36.7 per cent of the country). The city also accounts for 54 per cent of businesses providing professional logistics services in the country (about 2,700 businesses). However, small and micro enterprises operating logistics activities in the city today still account for a fairly large proportion, of about 40 to 50 per cent.

In the years to come, there is a possible future scenario with warehouses being built underground, and traditional trucks converted to electric vehicles, which can resolve concerns from stakeholders regarding noise and air pollution from delivery vehicles.

The urban logistics system is the foundation for urban development. To remain competitive, attractive and environmentally-friendly cities must engage in solutions that reduce the costs and constraints of urban logistics.

There should be a focus on investing in developing passenger transport infrastructure, logistics infrastructure, increasing cargo handling capacity, capacity of seaport warehouses, and investing in proactive supply chains to form service supply centers on a regional level.

At the same time, cities will also need to gradually restructure the market share, giving priority to developing rail, inland waterway, and air transport to reduce pressure on road transport.