Nationwide momentum seen in land price and rental rates

There was no new supply of either industrial zones (IZ) or ready-built-factory (RBF) being launched into the market in the first quarter of 2021 and Dong Nai and Binh Duong provinces continue to account for the largest proportion of total stock of both sectors.

Paul Fisher, country head in Vietnam for JLL

Other localities still have a long journey to catch up to Binh Duong and Dong Nai’s IZ supply as these two are the oldest-developed industrial markets.

In terms of RBF supply, Dong Nai overwhelms other provinces due to its well-developed industrial base and sufficient land bank for RBF developers to penetrate.

The transacted land acquisitions which took place generally started last year. Industrial properties in the south remained significantly desirable for manufacturers to penetrate, although the pandemic still poses potential issues for the market.

Due to healthy demand, both industrial land and RBF recorded high occupancy rates at nearly 86 per cent and 82 per cent respectively, an increase of 0.60 per cent and 0.76 per cent compared to Q4 of 2020. Industrial land recorded transactions were those which have been negotiated since last year, whilst RBF witnessed new leasing expansions of existing tenants rather than newcomers.

Land price and rental rates enjoyed good momentum with industrial land remaining the hottest sector for both newcomers as well as manufacturing expansion needs of existing investors, backed by Vietnam’s strong economic fundamentals.

Therefore, most IZ developers in southern markets still maintained strong momentum to raise land prices reaching new high at $111 per square metre, up 8.1 per cent on-year in the first quarter of 2021.

Whereas RBFs rents averaged at $4.5 per sq.m per month across the region, increasing 3.1 per cent on-year which was driven by the healthy demands of small- and medium-sized enterprises as they expanded operations. Overall, the supply for industrial properties in the south is expected to rise further in the next five years to capitalise on the increasing demand in the region.

Local authorities have shown further plans to establish new IPs of over 23,000 hectares in the future, which will be in the existing notable markets surrounding Ho Chi Minh City. The RBF market also stays buoyant, with the expected new launch of roughly 897,000sq.m RBFs by the end of 2021.

Like the southern provinces, no new supply in industrial land and RBF was introduced into the northern market in the first quarter of this year. The cumulative leasable land area in the market reached 9,500ha, while the total supply of RBF stood at approximately 1.8 million sq.m.

Bac Ninh and Haiphong dominated the total supply in both sectors thanks to their strategic locations and improvement in the business environment. RBF suppliers have begun to adopt the recently-coined “Industry 4.0 Factory” to better support users in facilitating RBF’s operations. It includes for instance a “virtual factory” tool to provide clients with RBF virtual tours; or a customer service app to keep clients up to date with current operations in RBFs in a more timely manner.

Occupancy rates remained healthy despite waves of COVID-19 infections. The batch of infections in the northern area in late January led to the postponement of new investments into the region, and the lockdown in Hai Duong in particular froze most of transactions in IZs in the first quarter of 2021.

Nevertheless, thanks to the strong influx of foreign investment in high-tech industries starting in the second half of 2020, the average occupancy rate of IZs recorded a healthy rate of 75 per cent, whereas occupancy rate of RBFs stood at 98 per cent in the first quarter of 2021.

Given the healthy demand, backed by Vietnam’s strong industrial fundamentals and combined with IZ developers’ strong confidence in the long-term investment horizon, land prices reached a new peak of $107 per sq.m in the first quarter of 2021, up 8.1 per cent on-year.

Meanwhile, RBF rents also showed an increasing trend, at 5.8 per cent on-year, of which Bac Ninh recorded the strongest growth rate of nearly 9 per cent on-year fuelled by the launch of high-quality RBFs.

To lure foreign investment, localities in northern areas have shown strong commitment to promote IZ systems, with over 10,000ha of additional supply in the future.

In addition to existing markets, second-tier provinces including Hung Yen, Hai Duong, and further north of Hanoi like Bac Giang and Vinh Phuc are emerging as potential destinations for foreign investors. Rents in those areas are expected to accelerate to on-year growth of 8-10 per cent.