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A shift to a hub-and-spoke model
Saturday,  3/6/2021, 16:26 

A shift to a hub-and-spoke model

By Alex Crane (*)

Buildings in HCMC - PHOTO: VIET DUNG

The downtown office will still play a critical role in future corporate real estate strategy. And social interaction drives productivity in specific areas of business and is central to corporate culture.

There is a conscious shift of when, how and where the office is used. This is a legacy from the global pandemic that will take hold in corporate real estate strategy in Vietnam.

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 headquarters’, the “hubs” may become smaller, but remain critical for key meetings, huddles, pitches and interactions. And also a key driver for talent recruitment.

The “spokes” are likely to consist of buildings in fringe areas or decentralised locations.

Naturally, they will be flexible and closer to the workforce, and most likely, with a more casual and cost-conscious approach.

And work-from-home may be ditched in favour of work- from- anywhere.

Besides, touchpoints around or out of the city may form part of a formal corporate real estate strategy as co-working spaces or informal, pre-approved locations such as shopping malls and coffee shops become places for employees to meet.

The adoption of the hub-and-spoke model, indeed, will depend on the corporate real estate strategies of multinational companies.

It is likely to 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.

As the e-commerce and FMCG sectors drive the fastest expansion in Vietnam, the hub-and-spoke would seem like a model that could be quickly and effectively replicated as distribution and warehousing requirements swell.

And 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?

So what would a hypothetical hub-and-spoke model look like? Therein lies the first hurdle: Vietnam’s economic powerhouses of Hanoi and Ho Chi Minh City 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 central business districts 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 whether 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 way from drone delivery in Vietnam.

Moreover, land in Vietnam will not be re-zoned for logistics or industrial purposes.

While the quality of older buildings in great locations may not be the ideal scenario for central business district 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 central business district portfolio managers may be shuddering at the thought of managing a multi-building portfolio when some of those buildings aren’t a poster child 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 such as IT networks, any operational problems of any spokes or even worse, the hub, lead 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.

(*) Alex Crane is Managing Director of Cushman & Wakefield Vietnam

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