While much attention is focused on how multinational corporations are responding to Trump 2.0's tariff announcements, small and medium enterprises (SMEs) face unique challenges in adapting to the transformed trade landscape.
Knight Frank's Horizon Report "From Whiplash to Resilience: Corporate Real Estate in the New World Order" highlights that these businesses, accounting for over 90% of all firms globally and contributing up to 50% of employment and GDP in many Asia-Pacific economies, are particularly vulnerable to the seismic shifts reshaping global trade architecture.
The disproportionate impact on smaller players
The report identifies that SMEs face acute exposure to trade disruptions due to structural limitations that larger corporations can more easily overcome. Unlike their multinational counterparts, smaller businesses typically operate with limited capital reserves to weather extended periods of margin pressure, while maintaining narrower supplier networks that make diversification significantly more difficult.
Many SMEs also face vulnerability due to concentrated customer bases tied to specific markets, and they frequently experience reduced access to trade financing as lenders' risk appetites contract in uncertain environments. These constraints create a perfect storm of challenges as trade policies shift rapidly and unpredictably.
Surveys by the Asian Development Bank (ADB) and OECD cited in the report highlight the region's tangible impacts already being felt. Supply chain disruptions and rising input costs have reduced output among small manufacturers, resulting in significantly delayed delivery timeframes and increasingly tight working capital conditions. These effects are particularly pronounced in sectors with complex supply chains such as precision manufacturing, consumer electronics, and textiles, areas where SMEs often play crucial roles as specialized suppliers or niche producers.
Real estate behaviour patterns emerging
In Malaysia, Vietnam, and parts of South Korea, trade policy uncertainty and inflationary pressures have prompted SMEs to delay expansion plans that would have proceeded under more stable conditions. This caution manifests in observable real estate trends that signal a fundamental shift in risk appetite.
Vacancy rates for strata-titled light industrial units have edged upward in suburban locations traditionally favoured by smaller businesses, while lease renewal negotiations increasingly focus on exit flexibility rather than rental rates. This is a clear indication that preserving optionality has taken precedence over securing favourable long-term economics.
Many SMEs choose short-term extensions over long-term commitments despite the premium this approach typically commands, reflecting their prioritisation of adaptability over cost efficiency. Perhaps most tellingly, multi-phase expansion projects that were once standard practice are now broken into smaller, more cautious increments that can be paused or accelerated as conditions evolve. This approach enables companies to maintain growth trajectories while minimizing exposure to sudden policy shifts that could render additional capacity unnecessary or uneconomical.
Delayed expansion in vulnerable markets
India produces approximately 1.5 million engineering graduates annually, more than the United States and the Chinese mainland combined. This talent pipeline has become increasingly valuable as companies prioritize access to qualified STEM talent in their location decisions.
This talent advantage has become even more significant as technology companies face increasing restrictions on talent mobility between the US and the Chinese mainland, making India an attractive alternative for building specialized technical teams at scale.
Targeted opportunities through government initiatives
Despite broadly challenging conditions, the report highlights several government programs creating strategic opportunities for forward-thinking SMEs. These initiatives represent potential bright spots in an otherwise cautious landscape, particularly for businesses aligned with specific policy priorities.
Thailand's Eastern Economic Corridor (EEC) stands out as a particularly comprehensive approach. It drives investment into industrial parks with components specifically designed for SME participation in priority sectors like advanced electronics, automotive, and medical technologies. The initiative includes physical infrastructure, technical assistance programs, preferential financing, and market development support, creating an ecosystem where smaller businesses can overcome traditional barriers to participation in higher-value industries.
Similarly, the Johor-Singapore Special Economic Zone (JS-SEZ) offers cross-border opportunities for smaller businesses to access both markets under preferential terms, leveraging proximity to Singapore's financial and logistical capabilities while maintaining Malaysia's cost advantages.
Indonesia's "Making Indonesia 4.0" roadmap provides another example. Specific provisions support SME technology adoption and integration into higher-value supply chains through a combination of financial incentives, technical assistance, and market access programs.
These initiatives share a common focus on building SME capabilities in automation, cold chain logistics, and small-batch production, where innovative smaller businesses can maintain competitiveness despite broader headwinds. These government programs identify potential areas for real estate investors and developers within otherwise cautious markets, particularly for projects aligned with specific policy priorities.
New real estate models gaining traction
The report identifies several alternative real estate approaches gaining popularity among SMEs navigating the current environment. These approaches reflect adaptation to constraints and strategic innovation in space utilisation.
Multi-tenant industrial parks with shared services
Rather than standalone facilities that require significant capital investment and long-term commitment, SMEs increasingly gravitate toward multi-tenant industrial developments that offer a more flexible, capital-efficient approach to space acquisition. These environments combine reduced individual footprints with shared amenities and infrastructure that spread fixed costs across multiple occupiers. Standard services, including security, maintenance, and logistics support, create operational efficiencies while reducing overhead, and the built-in expansion potential through modular design allows for growth without relocation disruption.
This model has proven particularly successful in markets such as Vietnam and Indonesia, where developers report accelerated lease-up timelines for multi-tenant facilities despite premium rental rates compared to standalone buildings. The success reflects SMEs' recognition that operational agility and capital efficiency have become more valuable than the control and customization traditionally associated with dedicated facilities—a fundamental shift in priorities driven by trade uncertainty.
Flexible lease structures designed for uncertainty
The standardised 5-year industrial lease rapidly gives way to more adaptable structures calibrated to current conditions. Base terms of 1-3 years have replaced mainly traditional 5-year commitments across most Asia-Pacific markets, with multiple extension options providing future flexibility while maintaining operational continuity. Variable space provisions allow expansion or contraction based on evolving needs. At the same time, graduated rent structures align occupancy costs with projected business development patterns rather than imposing fixed obligations regardless of performance.
Perhaps most notably, break options tied to specific business milestones or external triggers have become standard features rather than exceptional concessions, creating predetermined exit paths if circumstances change dramatically. These innovative structures distribute risk more evenly between landlords and tenants, recognizing their shared interest in sustainable occupancy through uncertain conditions rather than rigid enforcement of terms negotiated under assumptions that may no longer apply.
Third-party logistics integration
The report notes a significant shift toward outsourced logistics among SMEs unwilling or unable to commit to owned distribution infrastructure in the current environment. This approach allows manufacturing SMEs to focus limited capital on production capabilities rather than warehousing, while trading businesses can leverage established 3PL networks for flexible distribution without fixed property commitments. Inventory management outsourced to specialized providers offers greater scale efficiency than in-house operations, while multi-user facilities reduce fixed costs and exposure to market-specific disruptions.
This trend has significant implications for industrial property investors, who report growing opportunities in logistics facilities explicitly designed for 3PL providers serving multiple SME clients. This model provides space efficiency through shared infrastructure and risk distribution across diverse client portfolios—characteristics that have become increasingly valuable in the current environment.
While SMEs face disproportionate challenges in the current trade environment, Knight Frank's research reveals a more nuanced picture than simple decline. Through strategic adaptation, innovative real estate approaches, and alignment with policy priorities, forward-thinking small and medium enterprises are finding pathways to resilience and even growth amid broader uncertainty.
For more insights, please download the latest edition of Knight Frank’s Asia-Pacific Outlook series, Whiplash to Resilience: Corporate Real Estate in the New World Order, report below.
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