Industrial zone leasing takes a hit as 2021’s pandemic complexities hinder activities

An industrial zone in Ba Ria-Vung Tau with a number of foreign-owned factories. Photo: baochinhphu.vn

More than two months have passed since the latest wave of the broke out, severely impacting industrial manufacturers and zones in the southern provinces.

Many localities such as Ho Chi Minh City, Binh Duong, Long An, Dong Nai, and Ba Ria-Vung Tau are forced to apply regulations that allow enterprises to only operate when they ensure the implementation of strict stay-at-work guidelines, which enables their workers to sleep, have meals, and work at the site.

Many companies and factories, however, had to suspend operations. Pham Quang Anh, general director of Dony Garment Co., Ltd. said that his factory had closed because he could not meet all requirements.

“Enabling hundreds of workers to stay and have meals in the factory exceeded our ability, so we had to halt operations,” Anh said.

According to a Ho Chi Minh City Export Processing and Industrial Zones Authority (HEPZA) report, only 70 out of 85 enterprises in Saigon Hi-tech Park registered to continue operating under the new regulations. In Linh Trung Export Processing Zone and Industrial Park 1, 13 of 32 enterprises had stopped running.

Challenging production activities of enterprises also affect the operation of industrial zones (IZs). Meanwhile, the social distancing and travel restrictions continue to make it difficult for developers to find customers to rent land, factories, and warehouses.

Apart from foreign investors who cannot enter Vietnam, potential industrial real estate financiers and tenants can also not directly visit and survey projects in other provinces, which partly affects the rental prices in IZs.

Lam Dieu Tam Hieu, deputy general director of Kizuna JV Corporation, an enterprise specialising in ready-built factories in Long An province, said that only about 50 per cent of enterprises are currently still operating with the company’s factory solutions. These are businesses maintaining production for orders that are in progress or have raw materials available at the warehouses.

“It is extremely difficult for manufacturing enterprises to maintain their production in this period due to many factors such as rising labour costs, shortage of labour, increased shipping costs, and regulations amid the pandemic,” Hieu said.

As a support for many enterprises, Kizuna decided to reduce its rental fees by 15 per cent for the third quarter of 2021. Its fees will also not be adjusted according to the economic growth forecast from the last quarter of 2021 to the end of 2022.

According to Nguyen Van Be, chairman of the HEPZA, the industrial real estate market has slowed down, with few potential tenants asking for expanding or leasing factories.

Although affecting the leasing results of IZs, businesses still expect industrial real estate to continue to grow thanks to the government’s efforts in both fighting against the pandemic and maintaining production.

The implementation of community vaccinations and the promise of a vaccine passport programme are what brings confidence to both property owners and investors.

Hieu said that Kizuna is now trying to attract existing enterprises that want to expand their businesses in Vietnam and look for a new factory. The company is particularly focusing on manufacturing enterprises with existing factories who are looking for relocations and upgrades to cut costs.

“The readiness and support services of Kizuna are helping enterprises to locate to Vietnam. Our marketing and consultant services are also adjusted to be more suitable amid the pandemic. Meetings and discussions are happening on online platforms like Meet, Zoom, and other social networking channels such as KakaoTalk, Line, and Skype,” Hieu said.

Dang Thanh Tam, chairman of Kinh Bac City Development Holding Corporation, believes that with vaccinations in cities and provinces, the pandemic will soon be controlled. “With the current policies, I hope that Vietnam can push back the pandemic within the next few months, and that the country remains a favourite destination for foreign investors,” Tam said.

As one of the country’s leading IZ developers, Kinh Bac is determined to expand and build new IZs to meet the demand of new tenants.

“Just a few days ago, Kinh Bac received bookings from existing investors to expand their production lines and, at the same time, from new investors. For example, LG has expressed its willingness to acquire more space in the third phase of our IZs,” Tam said.