US tariffs expected to drive 15-20% rise in demand for manufacturing space in Vietnam, Indonesia: Knight Frank
Occupiers are likely to prefer flexible leases, hedge their geographical exposure and go for cost-optimised, demand-resilient markets
[SINGAPORE] The tariffs imposed by the United States are expected to drive demand for logistics and industrial facilities in Vietnam and Indonesia, as manufacturers diversify their supply chain away from China, real estate consultancy Knight Frank said in a report.
In Vietnam, relocation activity is already gaining momentum ahead of potential policy shifts; a 15 to 20 per cent increase in demand for manufacturing space is expected.
Knight Frank said international occupiers, especially e-commerce firms from mainland China, are expressing heightened interest in logistics spaces in Vietnam, particularly those exceeding 100,000 square metres (sq m).
A similar trend has emerged in Indonesia, where companies in the electronics, automotive and logistics sectors are fuelling demand for production and logistics facilities.
Knight Frank said: “The Chinese mainland’s economic ties with South-east Asia have strengthened significantly, driven by free-trade agreements and strategic moves to avoid US tariffs.”
Vietnam and Indonesia were the largest recipients of manufacturing investments from China in 2024, research provider Rhodium Group noted.
A NEWSLETTER FOR YOU
Tuesday, 12 pm
Property Insights
Get an exclusive analysis of real estate and property news in Singapore and beyond.
Since February 2025, Trump has imposed wide-ranging tariffs on 57 countries, with China being hit the hardest. The effective tariff rate on Chinese imports rose to 124.1 per cent in April, before both countries announced a 90-day truce on May 12.
The US and China have since committed to lowering reciprocal tariff rates to 10 per cent during this period. An existing 20 per cent tariff on Chinese imports remains, bringing the tariff rate on Chinese goods to 30 per cent.
Amid the sharp acceleration of US-China decoupling, a bifurcated path for real estate is emerging: Manufacturing and R&D firms will increasingly re-shore to the US, Mexico and India, even as Chinese firms expand their domestic capabilities in AI and green tech, Knight Frank said.
While it is difficult to attribute the changes in manufacturing activity in India to Trump’s tariffs, India’s efforts to drive manufacturing are already bearing fruit.
Knight Frank said: “The entry of global giants like Apple, Samsung and Foxconn in recent years has strengthened India’s position as a manufacturing hub, fuelling the need for warehousing infrastructure.”
As higher tariffs become the new baseline, occupiers are expected to pivot to flexible lease structures, hedge their geographical exposure and prioritise cost-optimised and demand-resilient markets, Knight Frank said.
Knight Frank anticipates that leasing volume in the office market across the Asia-Pacific could shrink by 15 to 20 per cent over the next 18 months as businesses limit and prioritise their capital expenditure.
In Vietnam, occupiers have shortened office commitments from five years to three to four years; in Indonesia, break clauses and rent-free periods are now common, as landlords compete on flexibility.
In the industrial market, Knight Frank expects a reduction of 20 to 30 per cent in leasing volume for logistics assets over the next year and a half, as trade volumes dive.
Anecdotal evidence from several South-east Asia markets suggest that the uncertainty surrounding trade policy and inflationary pressures has delayed the expansion plans of small and medium-sized enterprises, which would weigh on demand for smaller industrial spaces.
Vacancy rates for strata-titled light industrial units have edged up in some suburban precincts, and lease renewal negotiations increasingly reflect tenant concerns over cost pass-throughs, Knight Frank said.
“Demand will shift towards flexible logistics parks, leases with built-in options, and sites that can easily scale up or down. Areas near ports and free-trade zones will draw investment, while speculative projects in the Chinese mainland may take longer to fill.”
Build-to-suit office and warehouse facilities are gaining traction in India, Knight Frank said. In Indonesia, developers are also favouring purpose-built facilities and long-term agreements for stability.
There may be a silver lining for the industrial market as government-led initiatives such as Thailand’s Eastern Economic Corridor and the Johor-Singapore Special Economic Zone drive investments in industrial real estate, particularly in automation, cold-chain logistics and small-batch production.
“This suggests potential upside for modular and multi-tenant industrial formats near key transport corridors,” Knight Frank said.
Copyright SPH Media. All rights reserved.
