Vietnam Industrial Real Estate Market

Due to the recent transition in Vietnam from agriculture to industry and services, as well as numerous favorable market developments including mergers and acquisitions and the increased accessibility of new industrial land, industrial property has become a sector that attracts a lot of investor interest.

A quick look at the Vietnam industrial real estate market

The idea of the Vietnam industrial real estate market

Building industrial parks involves investing in industrial properties. They include a wide range of initiatives to develop different assets, including the construction of rental warehouses and factories, the growth of urban areas and office buildings, and investment initiatives for industrial output.

Landscape of the Vietnam industrial real estate market

Market highlights for Vietnam industrial real estate market in 2021 in relation to Covid-19

Despite COVID-19, statistics from the Ministry of Planning and Investment show that USD 10.5 billion in foreign direct investment (FDI) was realized in the previous seven months, a 3.8% YOY growth.

With approximately USD 7.9 billion, or 47.2% of all registered investment capital, the processing and manufacturing industry continues to top the 18 industries and sectors in which foreign investors have invested in Vietnam. With a total registered capital of USD 1.16 billion, the real estate sector is still in third place.

In addition, the General Statistics Office's Director, Ms. Nguyen Thi Huong, predicts that the second quarter of 2021's GDP growth rate would be 6.61% YOY, higher than the second quarter of 2020's growth rate of 3.9%. In general, GDP grew by 5.64% in the first half of the year, greater than the 1.82% growth rate in the same period in 2020. The industries of construction and industry have so far had the greatest growth.

According to the measures mentioned above, Vietnam performs well in comparison to other nations. Given that Covid-19 has been wreaking havoc on the world economy, this is even more astounding. If we take a look at the FDI indicators of the economy as well as the interest from foreign investors, the industrial property sector in Vietnam is particularly considered as a "spotlight" for the Vietnam industrial real estate market in 2021.

More specifically, as of June 20, 2021, the manufacturing sector had received USD 6.97 billion in FDI overall. In comparison to the VND 3.23 billion reported for the same period last year, the present production capital is USD 3.38 billion greater. Along with this, there have been numerous significant investment transactions in the market in the first half of this year. For instance, in the North, Jinko Solar of Hong Kong has invested around $500 million to build the Khoai River Industrial Park in Quang Yen (Quang Ninh), and Fukai Technology of Singapore is building the Quang Chau Industrial Park in the province of Bac Giang.

On the other hand, analysts think that the need for warehousing and logistics will create a sizable chance for industrial properties to prosper in the future alongside more conventional industrial properties.

Overall, even though Covid-19 painted a pretty bleak picture for 2020 and 2021, the industrial property category is still growing at a respectable rate. There will still be a lot of significant investments made in nearby industrial sites in the short to medium term.

Particularly, as predicted, this area will emerge even stronger in terms of both supply and demand once the pandemic has been brought under control.

Vietnam industrial real estate market in the northern region in 2021

Supply: According to JLL's analysis for the second quarter of 2021, Viglacera Yen My's Yen My industrial park in Hung Yen contributed additional supply to the rental property market in the northern region. This contributes to bringing the overall available industrial land area to almost 9,700 hectares. Viglacera also intends to begin work on a project to build the Thuan Thanh I industrial park in Bac Ninh in 2021.

The market for pre-built factories has also seen a fresh supply, which is mostly concentrated in Hai Duong. As a result, there are now 1.9 square meters more ready-built factories available overall in the northern region. Additionally astonishingly, the market also witnessed more M&A transactions in the second quarter of 2021, including Boustead Projects' purchase of 49% of the shares of KTG Bac Ninh Industrial Development Joint Stock Company for approximately VND 6.9 million.

However, the Vietnam industrial real estate market saw a slowdown in the second quarter of 2021 due to the Covid-19 epidemic that occurred at the end of April. The majority of current projects were tiny, and no new significant FDI projects were introduced to the market, which made the situation worse.

Occupancy rate: Despite Covid-19's effects, the northern region's occupancy rate held steady as a result of the announcement of several sizable projects for the fourth quarter of 2020 and the first quarter of 2021. In an effort to raise financing, some of these projects included LG Display or those of industry behemoths like Pegatron and Foxconn in Northern industrial parks.

While ready-built factories have suffered a dip compared to the first quarter of 2021 due to new supply, the occupancy rate in industrial parks in the North is currently remaining at 75%.

Additionally, as small and medium-sized businesses (SMEs) were the hardest hit by the epidemic, there were 22% more companies temporarily suspending operations in the first half of 2021 than there were in the same period last year. The scenario also had a detrimental effect on the occupancy rate because companies in the processing sector make up 11.9% of all SMEs.

Stable land and factory rentals: Covid-19 forced several industrial parks in Bac Giang and Bac Ninh to temporarily halt work, which restrained the upward trend in land prices. Land prices recorded an increase of 5.9% compared to the same period last year but slowed down compared to the first quarter of 2021, remaining constant at 107 USD per m2 per lease cycle in the second quarter of 2021. Additionally, rentals for already-constructed factories have seen an increase, though it was less than in the first quarter of 2021.

Market Prospects: The Northeast is projected to have a thriving industrial property market. Although there has been no official confirmation, Pegatron's rise in investment capital in Vietnam following the project in Hai Phong city is a sign that there will be a future need for industrial premises.

In addition to the Red River Delta provinces, the northeastern provinces of Quang Ninh, Bac Giang, and Thai Nguyen are also attracting a lot of interest from investors due to their favorable rental rates and advancing infrastructure. These regions' land prices are predicted to increase by 8–10% annually.

With the introduction of numerous new investors like Vietnam Industrial Park Joint Stock Company or GNP Industrial, the area is also predicted to be home to an incredibly lively market for pre-built factories.

Vietnam industrial real estate market in the Southern region in 2021

New supply has entered the Southern region's property for lease market, according to JLL's report for the second quarter of 2021. The developer is Tran Anh Group, and the supplier is Tran Anh Tan Phu Industrial Park in Duc Hoa District, Long An Province. The overall area of industrial property available for lease in the South has grown to 25,220 hectares as a result of this new supply.

As a result, Long An is solidifying its position as a premier location for sustainable industrial development in addition to the well-known Dong Nai and Binh Duong.

The reported data does not include new suppliers of ready-built factories for this quarter because of the effects of the fourth outbreak of Covid-19. There are currently 3.2 million square meters available.

Stable occupancy rate: Due to its generally positive economic growth indicators, Vietnam's industrial property sector still has a tremendous amount of potential and offers a number of distinct relative benefits. As a result, the nation attracts manufacturers and stands out in the logistics supply chain.

Despite Covid 19's effects, JLL's statistics for the second quarter of 2021 includes a number of acquisitions that were closed in Ba Ria Vung Tau. These land lease contracts are primarily with producers for heavy industries. Industrial parks and pre-built factories have occupancy rates of 85% and 86%, respectively.

During the epidemic, there were a lot of fresh purchases for industrial land as well. This indicates that both tenants and developers have gradually developed effective strategies to handle the epidemic and continue operating their businesses. Along with the emergence of new businesses, the ready-built factory sector also saw the commercial development of already established businesses.

While leasing costs for enterprises that produce goods ready-to-wear have remained unchanged, land prices are on the rise. Industrial land has consistently maintained a comparatively steady price growth over the years and is thought to be in a position of long-term production investment. Industrial park developers in the Southern region set a new average price peak of $113 per square meter every lease cycle in the second quarter of 2021, a rise of 7.1% from the corresponding period in the previous year.

In the meantime, the average monthly rent for ready-built industries in the Southern region was roughly 4.5 USD per square meter. This price, which is merely an increase of 0.5% from the same time last year, can be attributed to Covid-19's effects on this particular class of industrial property.

Market Outlook: As infrastructure gets better, lease prices will keep rising. Vietnam continues to be acknowledged as one of the nations that successfully managed the Covid-19 pandemic so far. This has been extremely important in solidifying and boosting investors' confidence in a potentially profitable sector, like the Vietnam industrial real estate market.

The infrastructure systems are constantly being built and improved by provincial governments, who have high hopes for the development of Vietnam's industrial industry. The Bien Hoa-Vung Tau Expressway, the Ben Luc-Long Thanh Expressway, and the Phan Thiet-Dau Giay Expressway are examples of common infrastructure developments. These resources are all situated in Saigon's prime industrial growth districts.

The cost of industrial land leases is anticipated to rise further in the Southern region. Over 940,000 square meters of the market for ready-built factories will be put up for sale in the final quarter of 2021, assuming that the Covid-19 situation improves and the Vietnam industrial real estate market recovers.

Market potential, obstacles, and possibilities for Vietnam industrial real estate market

Vietnam industrial real estate market currently faces significant challenges

The Vietnam National Real Estate Association (VNREA) claims that Covid-19 and the adjustments to administrative procedures are currently exerting significant pressure on the real estate sector generally. Investors continually bear the brunt of lengthy delays in construction-related projects. This has resulted in losses for their firm, along with the disruption of the supply chains.

Previous Covid-19 outbreaks caused a large number of small and medium-sized businesses to go bankrupt. In actuality, the activities related to real estate in general and the industrial property sector in particular have decreased by 60% to 70%. According to statistics, 50% of property transfers are currently dormant. Customers no longer exhibit much interest in products due to the supply constraint, and investors prefer to concentrate their efforts on mitigating the effects of the pandemic rather than taking additional risks.

COVID-19 also presents issues with supply chain management, business operations, and logistics with regard to the industrial real estate sector in Vietnam in particular.

Opportunities for the Vietnam industrial real estate market

The difficulties outlined above appear to have had an impact on investors' choices to invest in real estate when weighing threats versus opportunities. But if one exercises intelligent judgment, it becomes evident that opportunities actually outweigh challenges. An investing trend that is gaining popularity is industrial properties.

The need for land and factories has increased significantly over the past several years, which is why the Vietnam industrial real estate market is growing more vibrant and alluring. The rising occupancy rates of industrial parks are a sign that the industrial property market is improving.

Vietnam industrial real estate market recovers strongly

With significant purchases in strategic areas, the industrial real estate industry in Vietnam is transitioning into a new stage of expansion.

New possibilities and trends

A platform for industrial real estate investment and development has recently been introduced by the Indochina Kajima Development Company, a joint venture between Indochina Capital and Kajima Corporation, with a focus on the nationwide rollout of factory and warehouse properties for lease throughout the country's key manufacturing and logistics markets. Within the next 5-7 years, the Core5 Vietnam platform (www.c5ip.vn) intends to supply industrial assets worth roughly US$1 billion.

The KTG Industrial Nhon Trach 2 project has leased 20,000 square meters of ready-made production space to the German company Framas Group (Dong Nai Province). Framas specializes in creating premium plastic components for clients like Nike and Adidas.

Vietnam was selected as a factory site due to its superior facilities in comparison to other locations, claims Fabian Urban, Head of Footwear Technology at Framas Vietnam. According to him, the construction of the new factory is a component of the group's plan to expand the Vietnamese footwear market.

Numerous local and international investors have been drawn to Vietnam industrial real estate market developments in Vietnam's 260 industrial parks, 75 planned industrial zones, and significant economic zones in the country's south and north.

Vietnam has an advantage over many other nations in the region due to its lower industrial real estate prices, political stability, competitive labor costs, and government incentives.

According to a recent analysis by Cushman & Wakefield Vietnam, the northern area of the country contains roughly 10,000 hectares of industrial land spread throughout five important provinces and towns, including the capital Hanoi, Hai Phong City, Bac Ninh, Vinh Phuc, and Hung Yen.

According to Trang Bui, General Director of Cushman & Wakefield Vietnam, many investors continue to favor northern Vietnam. The northern industrial provinces offer benefits for high-tech firms despite having started their development later than the southern industrial market, as evidenced by the average occupancy rate of their industrial land of 80% in five important provinces and cities.

Logistics industry prospects

The pandemic, according to Tran Duy Dong, deputy minister of planning and investment, disrupted supply chains and the movement of goods, delayed the implementation of projects, and forced businesses, multinational corporations, and nations to reevaluate their business strategies and adjust their policies for luring investment. However, Vietnam continues to be a desirable location for FDI, inviting increasing investment from Asia, Europe, the US, and ASEAN (the Association of Southeast Asian Nations).

The lack of warehouses, cargo ships, and containers is increasing logistics costs. Other issues cited by economists that prevent the growth of the industrial real estate market include the absence of specific environmental and eco-industrial park criteria, incentive policies, and professional environmental, social, and governance (ESG) criteria, as well as labor shortages in the post-pandemic period.

Since Vietnam reverted to the "new normal” by putting COVID-19 under control, experts at the Vietnam Industrial Real Estate Forum 2022 held in May estimated that FDI has been thriving in the past five months, opening up many chances for industrial capital.

By enhancing its institutions and business climate and promoting investment in cutting-edge and environmentally friendly technology, Vietnam Industrial Real Estate Market has been prepared to welcome a new wave of investment and turn into a significant production hub.