Flurry of activity for industrial players

July 27, 2022 | 20:00
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The appearance of big names and new large-scale projects have brought positive signals to the growth of industrial property, amid the sharp increase in rent prices in industrial zones.
Flurry of activity for industrial players
Flurry of activity for industrial players, illustration photo

Experts are projecting a positive outlook on industrial property growth for the whole of 2022. JLL Vietnam’s report in April confirmed that the occupancy of industrial zones (IZs) in the north of the country was at 80 per cent in the first quarter, beating the 75 per cent from the same period last year, while that in the south has been maintained at 85 per cent because supply is soaring.

Industrial property prospects look vibrant thanks to new investors in recent months, and new zones on the way. Of these, industrial property in Binh Duong and Long An provinces has received plenty of attention from investors. VSIP 3 in Binh Duong, which broke ground in March, has seen interest from 30 corporations, including Lego’s factory with $1 billion in total investment.

Long An meanwhile welcomed a $136 million factory project by Coca-Cola in Phu An Thanh IZ in January and two ready-built factory projects from BWID (a venture between Becamex and Warburg Pincus) in Xuyen A and Vinh Loc 2 IZs in March.

Also starting construction this year include Cay Truong (700 hectares), VSIP 3 (1,000ha) developed by Becamex, the third phase of Nam Tan Uyen (334ha), Nam Tan Lap (245ha), and many more.

Also in April, Saigontel, a member of Saigon Investment Group, in collaboration with VinaCapital and Singapore’s Aurous Company signed an MoU on investment cooperation for a 700ha industrial complex project in Bac Giang province worth $2.5 billion.

Two months previously, Dai An Urban-Industrial Zone Development Corporation JSC signed a deal with Indian investors and selected the location for the International Pharmaceutical Park project on an area of 960ha in Hai Duong province and the total investment of $10-12 billion.

JLL Vietnam has reported that the average rental prices of industrial property in the north in the first quarter declined slightly over the previous quarter due to affordable prices of some IZs in inconvenient locations to accelerate occupancy, but this still reported a rapid increase of 9.2 per cent on-year.

In the south, occupancy remains at 85 per cent amid rising supply. A second-quarter report from Cushman & Wakefield said that land rental prices in five industrial cities and provinces in the south have climbed to a new level. Particularly in industrial properties, the highest rental price is $270 per square metre in Ho Chi Minh City (excluding management fees and VAT).

Long An also reported that the rental price for a special IZ has surpassed Ho Chi Minh City to $290 per sq.m, while the highest offer prices in such provinces as Binh Duong, Ba Ria-Vung Tau, and Dong Nai over the last three months were $110, $180, and $195 per sq.m, respectively. Despite the sharp soaring of prices in the second quarter, in fact, very few IZs could apply these figures, which belong to zones with prime locations, high standard technical infrastructure, and convenient traffic connections.

In the view of CBRE Vietnam, the price of IZs in the five southern localities of Ho Chi Minh City, Binh Duong, Dong Nai, Long An, and Ba Ria-Vung Tau have risen by 8-13 per cent on-year. Especially, some zones offered prices that are 26 per cent higher on-year.

Thanh Pham, vice director of CBRE Vietnam’s Research and Consulting Department, said that pre-lease bookings for newly-operated IZs in the south are quite vibrant. “The demand for leasing industrial land, warehouses, and built-up factories is increasing in various fields. Customers who commit to renting in advance often have the advantage of negotiating better terms in the context that developers are raising the rental prices,” said Thanh.

Huynh Buu Tran, CEO of industrial property consultancy KCN Vietnam, confirmed that the number of businesses wishing to expand production scale in southern IZs increased sharply in the first half of this year, causing the offering price of industrial land to set a new level in the last quarter.

“There are two main reasons for this. Firstly, the rental demand is large and the market size is constantly growing along with a strong wave of relocation. Secondly, more primary and secondary investors are setting foot in the southern IZ market. The rental price is climbing up when there is a large demand for searching and acquiring industrial land for factories and warehouses,” said Tran.

Forecasting for the whole of 2022, Mirae Asset Securities Vietnam JSC (MASVN) said in a June report that industrial property developers can benefit thanks to the large land area available and the high rental prices. Despite continuously increasing, the rental price is still affordable enough to compete with other countries in the region.

However, MASVN said the cost of development has increased significantly compared to 2019, and the cost of compensation and site clearance has increased by 10-50 per cent, affecting the progress of site clearance in recent years.

According to the Ministry of Natural Resources and Environment, IZ land area will be nearly 211,000ha by 2030, an increase of more than 85,000ha compared to 2022. “With the expansion of industrial land from 2023, rental prices may slow down,” added the MASVN report.

Dang Trong Duc - General manager KTG Industrial

Macro factors are affecting the supply and demand of industrial property. The cost of building the infrastructure of industrial zones is soaring dramatically because of fluctuations in raw material prices, which are caused by supply chain disruption, the lockdown of China, and the Russia-Ukraine conflict.

The US dollar exchange rate is increasing, while the fluctuation of bank interest rates is also a factor that directly affects the capital cost of real estate developers. They affect the main input costs and the output price of industrial property.

As Vietnam is becoming a manufacturing and logistics hub of the region, large demand from foreign investors who want to enter or expand in the country also positively affects the rental price of industrial real estate, especially surrounding Hanoi and Ho Chi Minh City. But Vietnam is still an attractive destination thanks to its young population, low labour costs, infrastructural development, and incentive policies.

For businesses that cannot suffer high rental prices, we advise them to move to secondary cities or provinces to save costs, as well as meet with business operations. We are adjusting and updating to save costs and manage rental prices because businesses are still struggling and need help.

Thomas Rooney - Head of Occupier Services Savills Hanoi’s Industrial & Commercial

Global supply chain problems and geopolitical movements, especially regarding China, have been a catalyst for diversification into Vietnam. There has been an increase in demand for ready-built factories and warehouses, with a trend of foreign rental developers capitalising on and catering to this demand. This is creating new surges in the price of industrial real estate.

The increasing price demonstrates that the market is recovering well. New inquiries from mature and emerging markets within Asia-Pacific are on the rise, and we are also experiencing more interest from Europe and the Americas. Affordable construction and labour costs, improving infrastructure, and free trade agreements contribute to foreign and high-value investors remaining bullish on Vietnam’s long-term growth.

By Hara Nguyen

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