Industrial real estate in Indonesia, Vietnam grows 20% due to trade policy adjustments

Manufacturing and logistics demand in Indonesia and Vietnam is expected to grow by up to 20 percent over the next three years, as companies increasingly prioritise building resilient regional supply chains over reacting to short-term tariff fluctuations. This is according to Knight Frank's Horizon Report, From Whiplash to Resilience: Corporate Real Estate in the New World Order.

Structural cost differences remain the key driver behind multinational companies from the Chinese mainland, Japan, and South Korea redirecting capital into Vietnam and Indonesia under “China+N” strategies. By investing in these Southeast Asian markets, firms gain access to cost-efficient, purpose-built industrial facilities that support supply chain diversification.

However, the recent 90-day suspension of the Chinese mainland’s tariffs, reducing rates from 145 percent to a base of 30 percent, has injected fresh uncertainty into relocation decisions, further reinforcing demand for short-term leases and flexible, plug-and-play logistics parks.

Tim Armstrong, global head, occupier strategy and solutions, Knight Frank, says, "Our analysis shows that while the temporary tariff reduction provides companies with breathing room, the 'China+N' strategy has become a standard operating model rather than just a response to tariffs. We have entered a time where corporate real estate strategy must evolve from footprint expansion to operational durability and total-cost performance. This isn't a cyclical adjustment, it's a structural transformation that requires entirely new approaches to portfolio planning, lease structures, and location strategy."

Knight Frank’s research highlights diverging trajectories across Asia-Pacific's real estate markets.

Christine Li, head of research, Asia-Pacific, Knight Frank says, "The shift toward an ‘Asia for Asia’ model, where over 65 percent of supply chain investment decisions are now driven by intra-Asian consumption, is accelerating. Industrial demand is rising in countries such as Vietnam, India, and Indonesia. Meanwhile, regional service and gateway hubs such as Singapore and Hong Kong SAR face second-order risks from US tariffs via global supply chain disruptions and spillovers from directly impacted economies."

Indonesia and India maintain strong growth potential. Indonesia is expected to see 15 percent to 20 percent growth in manufacturing-related real estate demand, led by electronics, automotive, and logistics sectors seeking long-term, purpose-built facilities. Meanwhile, India's office market remains strong, accounting for 47 percent of regional leasing activity in 2024—up from 36 percent in 2015—with a record 6.68 million sq m of transactions, driven by IT firms, Global Capability Centres, and multinationals attracted by talent and cost advantages.

Vietnam remains a key beneficiary of ‘China+N’ diversification but also stands among the most exposed to the US reciprocal tariffs. Knight Frank research projects a 15 to 20 percent rise in demand for manufacturing space in Vietnam, reflecting sustained interest from international occupiers, particularly large Chinese mainland e-commerce firms seeking logistics facilities over 100,000 square metres.

The Chinese mainland may see temporary relief from the tariff reduction, but structural challenges persist with rising industrial vacancy rates in Shanghai and Beijing due to persistent oversupply. The government's focus on domestic consumption remains the primary expected driver of industrial space absorption.

Knight Frank's latest Global Corporate Real Estate Sentiment Index (GCRESI) reflects the shift toward operational resilience. When sentiment metrics declined immediately following the April 2 tariff announcement (-1.01 points overall), longer-term strategic indicators such as capital expenditure (+0.04) and physical expansion plans (+0.06) continued to show strength. This pattern of tactical caution paired with strategic conviction reflects how companies prioritise adaptable, resilient approaches in markets such as Indonesia and Vietnam over simply seeking the lowest-cost locations.
More information about the GCRESI is provided in the annex.

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CRE Playbook: Five essential strategies for navigating the new world order
The report outlines a comprehensive Corporate Real Estate Playbook for succeeding in what has become a structurally volatile trade environment:

Ø Embrace flexible lease structures: Traditional 5-year terms give way to shorter 1-3 year arrangements with expansion options and break clauses
Ø Prioritise purpose-built facilities: Built-to-suit developments are replacing speculative projects as occupiers seek spaces tailored to specific operational requirements.
Ø Pursue regional self-sufficiency: Companies are creating redundancy within regional footprints rather than relying on global integration.
Ø Design for operational resilience: Facilities that can adapt to changing production needs and trade conditions are commanding premium values.
Ø Integrate scenario planning into decision-making: The 90-day negotiation window emphasises the need for multiple contingency plans in real estate strategy.

Tim adds, "Corporate real estate has moved beyond location strategy to become a vital component of operational resilience. Despite the temporary easing, the current trade environment reinforces the need for agility in portfolio management and lease structures. Companies that calibrate their real estate approach will be better positioned for success regardless of how the US-China negotiations unfold."