Mega-Project Mania: Identifying mega-sites among Thailand’s industrial zones | Tractus

This article is part of a series exploring Southeast Asia’s industrial zone landscape. For a comprehensive global overview, refer to our Vietnam’s mega-sites review.

Thailand’s automotive sector is central to its manufacturing industry. It accounts for around 10% of GDP and produces 1.9 million cars annually. As the global automobile sector is electrifying, so too is Thailand’s. Tractus previously commented on the policies driving Thailand’s push towards an EV future in “Electrifying Thailand”. The recent investments we are seeing from car manufacturers, tier-one suppliers, and companies throughout the EV value chain are evidence that Thailand’s policies have created attractive conditions for foreign investment in the sector, but they have also created unintended consequences for industrial real estate.

Vehicle assembly projects require large tracts of land, and recent projects requiring these “mega-sites” in the hub of Thailand’s automobile industry, the Eastern Economic Corridor, include BYD’s $491 million investment requiring 96-hectares (Ha), Great Wall Motor’s $710 million investment covering an area of 65 Ha, and an investment from Foxconn and PPT needing 50 Ha. The strategic advantage that Thailand offers these companies through the strength of its automotive assembly sector, the availability of key Tier-1 and Tier-2 component suppliers, the depth of the automotive and electronics manufacturing supporting industry ecosystem, qualified manufacturing workforce, physical infrastructure, and utilities, as well as investment incentives will attract more mega-projects as investors look for sites that de-risk their existing operations.

Finding your comfort zone

Thailand’s industrial real estate developments are classified into three types: industrial estates, industrial zones, and industrial parks. Industrial estates are developed either by the Industrial Estate Authority of Thailand (IEAT) or by the private sector following masterplan guidelines established by the IEAT with all utilities guaranteed by the IEAT through agreements with national utility providers. Industrial estates provide a mechanism for foreign investors to own freehold title to land that is otherwise restricted. Industrial zones and industrial parks are developed by private developers following regulations administered by the Department of Public Works and Town and Country Planning. Unlike industrial estates, foreign investors are not allowed to hold freehold title to land unless they are promoted by Thailand’s Board of Investment (BoI). Foreign companies preferentially choose to locate in industrial estates, parks, and zones because of the established infrastructure, surety of land title, and assurances of zoning clarity, while Thai-owned companies typically purchase land outside of zones. For the purpose of this article, industrial estates, zones, and parks are referred to generically as “zones” throughout.

Thailand’s industrial real estate developers have decades of experience managing large zones hosting complex investments that have gained them recognition across ASEAN, and even seen some develop successful zones outside of Thailand. Many of the large and medium-sized developers are publicly listed, and the small zones are also well managed. The IEAT’s masterplan guidelines and other regulations provide a level of confidence in the quality of zone infrastructure that is lacking in other ASEAN markets. While the quality of Thailand’s industrial zones is highly regarded, the number of zones lags behind that of its peers in ASEAN. For comparison, there are currently 105 operational zones in Thailand, which is below the 134 zones in Indonesia, 247 zones in Malaysia, and 292 zones in Vietnam.

Good land is hard to find

Occupancy throughout Thailand’s zones rose to a high of 78% in 2022. Forecasts are expecting that new investments will require an additional 430 Ha of land to meet investor demand during 2023, putting pressure on developers to accelerate expansions. Developers are expanding existing zones to meet demand; however, this is a very time-consuming process with a high risk of delays and complications. Developers must first undertake an extensive Environmental Impact Assessment (EIA), which can take upwards of 18 months, if the process moves according to schedule, before infrastructure development can commence. This has resulted in limited available land in a highly active market being driven by FDI.

The Eastern Economic Corridor (EEC) is the industrial center of Thailand and the hub of manufacturing in the country, with 50 industrial zones located in the three provinces of Chachoengsao, Chonburi and Rayong. Each province is a mature industrial center that has seen large-scale investments and provides proximity to Bangkok, regional population centers, and transport infrastructure. During 2022, investments were primarily concentrated in Rayong and Chonburi, which attracted 197 and 188 FDI projects, respectively. These two provinces are historically the hub of manufacturing, while Chachoengsao received less investment with 40 projects during 2022.    

Mega-sites requiring more than 50 Ha in a contiguous plot are in short supply in the EEC, and across Thailand. A recent site-selection conducted by Tractus for a company in the EV value chain identified 9 zones that could accommodate an investment of up to 50 Ha out of the 61 zones that would accept an investment from a company operating in the EV industry. This amounts to 8.6% of all estates and zones in Thailand that can immediately supply land for a mega-site.

Zone expansions solve one problem but unearth others

There is limited availability of titled, permitted, and investable land for mega-sites, but many zones have large tracts of land for expansion that can accommodate a mega-site scale project. Some zones have acquired and banked as much as 500 Ha of land in expansion areas. This land has been zoned for industrial use by the Department of Public Works and Town & Country Planning, but often the developer has not completed an Environmental Impact Assessment (EIA) for the expansion or revised the masterplans to integrate the expansion area into the zone. These two procedures pose a risk to the project schedule, as well as project parameters, requiring both time and capital from the developers.

Thailand’s extensive EIA process requires consultations with multiple government agencies, as well as with local communities, and the collection of technical data. Developers are trying to keep pace with investor demand but often will not initiate an EIA process, or revise the masterplan until they have confirmed investor interest. Infrastructure development cannot commence in these expansion areas until the procedures are approved by relevant government agencies, and this can take upwards of 18 months from the official commencement of an EIA. Assessing how far developers are in the EIA and masterplan approval process is therefore critical to identifying an optimal site that meets the investment schedule.

Establishing a plant in a zone with the expectation of expanding the site before an EIA is complete presents another risk. The EIA will set environmental compliance regulations that investors must meet, including air emissions and these may have different parameters than the original site. Thailand measures air emissions based on the total daily output per kilogram, per square meter of land. Emissions of sulfur oxides (SOx), nitrogen oxides (NOx), and total suspended particulates (TSP) are pollutants that are tightly regulated across all of Thailand’s industrial zones.

Emission standards prescribe limits for SOx, NOx, and TSP emissions, which investors must meet. These limits are well defined, but there are substantial variances between the maximum allotment that individual zones are permitted. Allowances are based on the air quality that is measured during the EIA. If a zone has large-scale investments from heavy emitters in its existing industrial area, the expansion area will have tighter requirements. A zone’s proximity to population centers will also impact the air emissions requirements. Deciding to invest in a site that provides land expansion before an EIA is concluded in the expansion area may lead to a scenario in which the air emissions standards will be stricter in one part of the site than the other, creating significant complications for compliance. Table 1 provides a sample of air emissions in four different zones, demonstrating the variances that exist between them.

Thailand’s industrial zones provide an attractive location for companies seeing to benefit from the country’s competitive advantages. But with limited land, long lead-times for EIA completion, and unpredictability of what future air emission and other standards may permit, there are risks that investors must assess in any site-location analysis involving Thailand. Understanding these risks as well as the other costs and benefits of locating in Thailand is vital to identifying the optimal site.

---

What We Can Do

Tractus has been assisting companies to make informed decisions about where to invest and how to expand their business in Asia and beyond for over 25 years. Our partners and senior management leverage their experience running successful manufacturing and service businesses, bringing this commercial perspective to our client work. We have proven experience advising companies on their location strategies, helping them optimize their real estate portfolios and identify the optimal sites to support their companies’ growth. We use a proven, integrated site selection, real estate and incentives negotiations methodology, comparing locations in a systematic and objective way that leads to a defensible result.

Authored by

James Meisenheimer, a Senior Consultant Manager based in our Thailand office; and Arunrat Chumroentaweesup is our Consulting Manager Thailand.