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Vietnam Corporate Real Estate: Office portfolio strategies may shift to a hub-and-spoke model, but does that put logistics at risk?


Covid-19’s emergence in early 2020 forced global industries, including our own, into an introspective mode. In particular, Cushman & Wakefield and many of its largest clients had to look at how offices were, and were not, being used. As the world shifted to a work-from-home (WFH) approach, consultants across the globe were quick with opinions for recovery plans, ideas on safe re-entry, and what the future might look like in a socially distanced office. For those in Vietnam, the reality is that the office doors quickly reopened, and for the most part people returned to the status quo. This was a good signal that we were moving back to normal - not a ‘new normal’ - and in many ways, it felt like we never left.   

If there is a legacy from the global pandemic that will take hold in corporate real estate (CRE) strategy in Vietnam, it is a conscious shift of when, how, and where we use the office.  Office portfolios may begin to look similar to the model used by logistics markets across the globe for many years: the hub-and-spoke.  

Downtown HQ’s, the ‘hubs’ may become smaller, but remain critical for key meetings, huddles, pitches, interaction, and a key driver for talent recruitment. There is no doubt the downtown office will still play a critical role in future CRE strategy. We have learned that social interaction drives productivity in specific areas of business and is central to corporate culture.  

The ‘spokes’ will likely consist of buildings in fringe areas or decentralised locations; they will be flexible and closer to the workforce, and likely with a more casual and cost-conscious approach. In addition, WFH may be ditched in favour of WFA (“work from anywhere”).  Touchpoints around or out of the city may form part of a formal CRE strategy as co-working spaces or informal, pre-approved locations such as shopping malls and coffee shops become places for employees to meet.   

It is fair to say that the adoption of this model will depend on the CRE strategies of multinational companies. It will likely be encouraged by large firms evaluating space in Vietnam (and the wider APAC region) as it continues to grow faster than other continents in terms of requirements for desk spaces. CRE professionals from all sectors - banking to eSports to advertising - will be looking at how to converge people, but not necessarily at a fixed location. 

The hub-and-spoke model is far from new. For the last 50 years or so, the aviation, IT, and logistics industries have been proponents of the model. In Vietnam, as the e-commerce and FMCG sectors drive fastest expansion, it would seem like a model that could be quickly and effectively replicated as distribution and warehousing requirements swell. One trend that has surfaced as a result of the pandemic is that logistics and industrial real estate have become a core asset to many investors. For occupiers, warehousing and logistics real estate needs can be fast-moving yet generally reliable in availability and attainable as they race through the challenges of Covid-19.    

However, we should deliberate on the apparently straightforward strategy used by logistics. Perhaps further introspection may be beneficial rather than jumping into a seemingly successful 50-year old model. Is a copy-paste solution really advisable in our unique, opaque, and fast-moving market? 

There are some very specific factors at play in Vietnam’s logistics segment.  One of the key issues at the forefront of the local supply chain - and probably the hardest to fathom for those outside Vietnam’s borders - is the dependence on cash by consumers.  While credit card usage and online payments have increased, there’s still an objective reliance on cash across the country. However, the State Bank of Vietnam has set a target of 90% of the population over the age of 15 to have a bank account by 2030 which highlights just how much of the country still reaches for analogue money first. 

As any e-commerce professional in Vietnam will acknowledge that cash-on-delivery (COD) is a foundation for sales, driver of growth, and an incredibly large headache in terms of the higher potential for return rates compared to online payment.    

Typical hub and spoke model in the US:

Vietnam Corporate Real Estate: Office portfolio strategies may shift to a hub-and-spoke model, but does that put logistics at risk?

So what would a hypothetical hub-and-spoke model look like from a thousand kilometres away? Therein lies the first hurdle: Vietnam’s economic powerhouses of Hanoi and Ho Chi Minh City (HCMC) are 1,500kms of often disparate, bumpy highways. With no rail freight available, a central ‘big box’ simply doesn’t work.

Then looking at hubs in each of the core cities, three distinct CBDs have emerged due to population shifts and 3% urbanisation growth. Rapid changes to infrastructure have resulted in a tug-of-war effect that moves the centre of gravity as well as their sub-market geographies and demographics. Taking Ho Chi Minh City as an example, it is rather challenging to predict the future of a city with an area approaching 700,000 square kilometres and growing rapidly in all directions. While infrastructure planning is good, implementation of infrastructure is harder to forecast and bets are unlikely going to be made on if or when a bridge or overpass is completed. What initially looked like shooting fish in a barrel has become three barrels, all moving and changing size.  

We are therefore left to consider how the hubs will interact with the spokes, which may end up being a wider assortment of basic cross-docks or depots in better locations but in Vietnam these are often poor or basic facilities. This highlights another nuance of the local market: we will unlikely see brownfield solutions to inner-city distribution, and we are a long time away from drone delivery in Vietnam. Moreover, land in Vietnam will not be re-zoned for logistics or industrial. While the quality of older buildings in great locations may not be the ideal scenario for CRE strategists, the CEO and fulfilment directors will not mind as long as their motorbikes can get out to their customers on time. Again, motorbikes are less widely used in the old-school western hub-and-spoke model.      

Traditional CRE portfolio managers may be shuddering at the thought of managing a multi-building portfolio when some of those buildings aren’t a posterchild for real estate.  However, the unique features of Vietnam (geography, congested traffic, motorbike delivery, flooding, power disruption, developing infrastructure, and tolls) are probably a greater risk to the supply chain than acquiring moderately priced warehousing instead of a shiny, premium-priced ‘big box’. For one-hub organizations like IT networks, any operational problems of any spokes or even worse, the hub, leads to immediate bottlenecks on performance. In Vietnam, where there are more potential risks to the chain than other nations, the mesh of point-to-point and hub-spoke networks of interacting facilities might be the best bet for continuity of service. The accelerators in this scenario might be the growth of ghost-kitchens or better adoption of just-in-time inventory management across the logistics functions of any business. 

Perhaps too, if e-commerce and retail were to truly converge, it might drive a mid-mile/last-mile demand for space which could further add argument for a hub-spoke/point-to-point hybrid portfolio. In this case, maybe we do not need to dismantle the hub-and-spoke but find a localised solution, which may be adding more, smaller wheels. 


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