|Alex Crane - Managing director, Crane & Co Real Estate Consulting |
However, most real estate segments are in some way connected with the multinational life science sector and this will be observable across all geographies of Vietnam.
The sector is a good occupier of quality office space and a large user of logistics and manufacturing facilities and supply chains. These will all see significant growth as Vietnam’s position as an exporter continues to emerge and the population inside our borders grows, becomes wealthier, and ages.
Fitch Solutions wrote that by 2023 private healthcare spending in Vietnam would reach $23 billion. This was a pre-pandemic estimate in 2019 and one would expect that more emphasis on health will result from COVID-19.
Segments that are nascent and do not see as much foreign involvement might be things like cold-chain logistics, warehousing, and R&D.
Perhaps there will be some time before we see more R&D for medicines in Vietnam by foreign investors, but there might be a very strong case for more in fields like medical product and devices, which would also drive more manufacturing.
The cold chain is probably a bit of a buzz-phrase in real estate and logistics and there is so much potential to come through the improvement of buildings and transport infrastructure.
There is, of course, potential in logistics and manufacturing and this is well documented for Vietnam. Opportunities to improve the cold chain and last-mile logistics exist and the last-mile challenge in Vietnam is quite unique. In fact, it is the domestic companies that have the advantage here, which makes it an area ripe for foreign-backed mergers and acquisitions.
Technology has really impacted the life science sector since the pandemic began and thus I would expect to see greater efficiencies in distribution channels, but also opportunities for Vietnam’s burgeoning tech startup sector which may impact how these companies operate or indeed how we buy/use products or services.
With the application of web-based healthcare and drones supplying medicine to remote areas, there is so much that can be done for the industry to affect peoples’ lives in Vietnam.
Life science real estate offers opportunities in the progression of building standards and design. These occupiers are often some of the most innovative in how office space is used – for example, the first two LEED-accredited office interiors in Vietnam were Johnson & Johnson and Roche. These were initiatives designed to improve worker wellbeing, something we will see more with the prominence of COVID-19.
Both investors and developers will need to be ready for the changes life science occupiers will require and there will be a bigger shift in when, how, and where these companies work, manufacture, and sell.
Subject to the nature of a business, some physical restrictions may be challenging to overcome with license requirements relating to real estate and specific elements used on certain sites such as chemicals in laboratories or warehouse storage. This also leads to construction price considerations which are often higher than average and are still growing as the pandemic leads to material shortages.
This is all on top of the fact that the price of industrial land in Vietnam has more than doubled in some areas. The rate of increase of the price of industrial land at circa 10 per cent on-year over the last few years is not sustainable and Vietnam has now caught up with Thailand in terms of land price, which may now look cheap in comparison.
Vietnam has a lot of competition; countries that are able to offer a “one window” approval process for projects, cheap labour, and cheap land and construction will continue to attract the world’s best companies, such as the case in India which, before the pandemic began, produced half of the world’s vaccines.
A fast-developing regulatory landscape in both the real estate and the life science sector in Vietnam brings potential challenges which need to be addressed during the registration process and as with many sectors, regulations often need further alignment between circulars as well as institutions. Fortunately, these ongoing issues do seem to be something the Vietnamese government constantly adjusts and improves.
Cold chain and last-mile delivery services must improve nationally and once a cheaper and more secure domestic logistics network in Vietnam takes shape, we may see more foreign production of medicines. Certainly, Vietnam can join the table when manufacturing medical devices. There will be a positive impact in logistics and manufacturing, and also building design.
Future-proofing office spaces is imperative for any investment but looking ahead to how life science occupiers use space is often a foreshadow of other occupier sectors.
Environmental design inside and out, wellness considerations, and possibly reimagining where and how space is used will surely be driven by the segment which, during the response to the pandemic, has shown how nimble it can be, as well as fast to act, change, respond, and lead.
Investors are attracted to the life science sector as occupiers. They are of scale, are cash-rich, and offer exemplary credit value. The larger the sector becomes in Vietnam, the better the real estate around it will be required. The prospects for R&D and manufacturing are bright and in the longer term, medicine and biotech shouldn’t be far behind.