Trade Policy Shifts Drive 20% Industrial Growth in Indonesia and Vietnam, According to Knight Frank’s Horizon Report

Indonesia and Vietnam could experience up to 20% growth in demand for manufacturing and logistics space over the next three years, as businesses shift focus from reacting to short-term tariff changes to building more resilient, regionally based supply chains. That’s according to Knight Frank’s Horizon Report: From Whiplash to Resilience – Corporate Real Estate in the New World Order, which outlines the key real estate trends shaping corporate strategy in a rapidly evolving trade landscape.

The report highlights that structural cost advantages remain a primary factor behind multinational companies from China, Japan, and South Korea funnelling capital into Southeast Asian markets under “China+N” strategies. By investing in countries like Indonesia and Vietnam, businesses gain access to cost-efficient, purpose-built industrial facilities that support long-term supply chain diversification.

Knight Frank’s findings follow the recent 90-day tariff truce between China and the United States, in which China committed to reducing duties on US imports from 125% to 10%, while the US lowered its tariffs from 145% to 30%. While this temporary reprieve may appear to ease tensions, it has instead introduced new uncertainty into long-term relocation planning. As a result, demand is rising for short-term leases and flexible, plug-and-play logistics parks that give companies greater agility amid shifting policy conditions.

Chart 1: Vulnerability Matrix – Regional Exposure to Trade Shifts

"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,” said Tim Armstrong, global head, occupier strategy and solutions, Knight Frank. “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."

Across Asia-Pacific, Knight Frank’s research reveals divergent trajectories in real estate markets, shaped by changing patterns of investment and regional consumption.

"The shift toward an ‘Asia for Asia’ model, where over 65% of supply chain investment decisions are now driven by intra-Asian consumption, is accelerating,” said Christine Li, head of research, Asia-Pacific, Knight Frank. “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 continue to demonstrate strong growth potential. In Indonesia, Knight Frank projects 15% to 20% growth in manufacturing-related real estate demand, driven by sectors such as electronics, automotive, and logistics, all seeking long-term, purpose-built facilities. In India, office market momentum remains robust, with 2024 leasing activity reaching a record 6.68 million square metres, accounting for 47% of the region’s leasing activity, fuelled by IT firms, Global Capability Centres, and multinational companies attracted by talent availability and cost advantages.

Vietnam, while a key beneficiary of China+N diversification, also ranks among the most exposed to US reciprocal tariffs. Even so, Knight Frank anticipates a 15% to 20% rise in demand for manufacturing space in Vietnam, buoyed by sustained interest from international occupiers. Notably, Chinese mainland e-commerce firms are leading the charge, seeking logistics facilities exceeding 100,000 square metres.

In contrast, the Chinese mainland faces persistent headwinds despite temporary tariff relief. Rising industrial vacancy rates in major cities like Shanghai and Beijing point to ongoing oversupply, with domestic consumption remaining the central driver of industrial space absorption.

Knight Frank’s Global Corporate Real Estate Sentiment Index (GCRESI) further underscores the strategic pivot toward operational resilience. While overall sentiment dropped by 1.01 points following the April 2 tariff announcement, long-term indicators remained stable or positive, capital expenditure ticked up by 0.04 points and physical expansion plans by 0.06. This blend of tactical caution and strategic confidence suggests that companies are now prioritising adaptable, resilient market positions, particularly in emerging markets like Indonesia and Vietnam, over a singular focus on low-cost locations.

The full report, " From Whiplash to Resilience: Corporate Real Estate in the New World Order," is available at link.