Metamorphosis of the Philippine logistics and industrial property sub-sectors
(Second of a series)
Last week, we delved into the changing preferences and new economic realities that shape the future of residential real estate. For this week, we will look more into the logistics and industrial real estate sub-sectors, which have long been key players in the economy.
Bolstered by a thriving e-commerce sector and the increasing adoption of digital tools, the resilience of these sub-sectors during challenging times—including economic slowdowns and the COVID-19 pandemic—is undeniable.
However, as the new normal solidifies, these sectors require a shift. Future-proofing logistics and industrial real estate is critical for driving economic recovery and ensuring sustained growth in the overall Philippine real estate market.
A glimpse of the current landscape
The logistics industry, evidenced by steady revenue growth among third-party logistics (3PL) providers, has performed admirably over recent years.
Major 3PL operators have exhibited annual revenue growth rates ranging from 7 percent to 16 percent. In 2024, the market reached around $19.16 billion, reflecting its robust demand. However, the infrastructure supporting this growth tells a different story.
Majority of existing logistics and industrial facilities in the Philippines fail to meet the quality and specifications demanded by today’s emerging set of occupiers. This has resulted in a supply-demand mismatch, with over two-thirds of current facilities unable to cater to modern logistics requirements.
Many warehouse developments still rely on traditional designs that hinder the adoption of digital and automated systems. New occupiers need innovative, world-class facilities, but those are in short supply.
Consequently, the Philippine logistics and industrial sub-sector faces a zero-sum game. Average industrial (warehousing) property rents have been skewed upward by traditional, low-grade warehouses, deterring potential investors concerned about delayed returns on their capital. Combined with elevated property and power costs, the sector risks losing local and international interest.
Emerging opportunities
Amid these challenges, opportunities abound. Key trends driving demand hold the promise of revolutionizing the Philippine logistics and industrial property markets if the right investments and policies are put in place.
To capitalize on these opportunities, there is an urgent need for policy frameworks that support the vertical integration of supply chains, transportation system improvements, and more efficient data management processes.
Additionally, stakeholders should consider providing more level playing field, market transparency and ownership flexibility to attract more experienced and best-in-class foreign investors.
Data center. The Philippines is witnessing a surge in interest from hyperscale data center operators, driven by demographic trends and digitalization. Compared to Singapore, the country has significant growth potential in this area. However, this segment’s growth is hindered by sustainability concerns, restrictive data privacy laws, and elevated costs for real estate and utilities. Addressing these challenges could unlock a boon for the local economy.
E-commerce boom. The growth of e-commerce and increasing expectations around last-mile delivery are creating a pressing demand for well-planned logistics hubs in urban areas. Cities like Metro Manila, Metro Cebu, and Metro Davao are prime candidates for such facilities, alongside an emerging appetite in rapidly growing regions like Batangas and Cavite.
Asean economic integration. Closer economic links with Asean neighbors provide opportunities for trade and investment, enabling the Philippines to position itself better as a competitive logistics hub.
Automation and robotics. To remain competitive and meet global standards, the adoption of automation and robotics in warehouses and distribution centers must accelerate. From artificial intelligence-driven inventory management to fully automated property systems, these innovations improve efficiency and reduce labor costs while setting Philippine facilities on par with Asean neighbors.
Cold storage. The rising demand for pharmaceuticals and perishable goods highlights the need for specialized cold storage facilities not only within Metro Manila but also in major industrial hubs such as Batangas, Bulacan, and Davao.
Infrastructure projects and improved utilities pipeline. Completion of critical projects like expressways and seaports will dramatically improve the transportation network critical to logistics. Expanding power and water availability is essential to support uninterrupted industrial activities, particularly for data centers and cold storage facilities.
Roadmap for the future
The metamorphosis required within the Philippine logistics and industrial property sub-sectors is no small undertaking.
However, the opportunities for growth, profitability, and sustainable development make it an endeavor worth pursuing. From cold storage to data centers, the possibilities are vast. But they require forward-thinking policies, bold investments, and a commitment to innovation.
With focused effort and collaborative partnerships, the Philippines can position itself as a leader in the competitive Asean logistics and industrial market and beyond.
The author is the director and head of Research, Consulting and Advisory Services of Cushman & Wakefield
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