What Investors Need to Know about Industrial Real Estate in Vietnam (Part 1)

What Investors Need to Know about Industrial Real Estate in Vietnam (Part 1)

As Vietnam’s competitiveness for foreign investment consistently increases, the demand for industrial real estate in the country has experienced healthy growth over the past 10 years. As of May 2021, Vietnam has 394 industrial parks (IPs) with a total area of 121,900 ha, up by 134 IPs compared to 2010. Of 394 IPs across the country, 286 are in operation with an occupancy rate of 71.8%.

Expanding industrial land

The number of industrial parks in Vietnam continues to rise as foreign investment pours in. Within Q1/2021, dozens of IP projects were approved across 13 cities and provinces of Vietnam. With the highest occupancy rate for industrial properties in Vietnam, Bac Ninh expected the most IP projects, with five upcoming IPs and a total of 1,158 ha new industrial land. Vinh Phuc recorded the establishment of nearly 500 ha in new IPs. Other provinces including Hai Duong, Nam Dinh, Thua Thien Hue, Nghe An, Quang Nam, Quang Tri also saw new projects. Meanwhile, in the South, there will be 6,475 ha from three additional IPs, namely Long Duc 3, Bau Can-Tan Hiep, and Xuan Que – Song Nhan being introduced. In addition, Long An will have about 1,500 ha of additional cleared land in its IPs to keep pace with its potential and high demand for industrial land in the region.

Though the demand for industrial land has slowed down in Q2 and Q3 of 2021 as a result of COVID -19,
investment in industrial real estate in Vietnam continues to take off. Earlier this year, the Singaporean real estate developer, Boustead Projects, acquired a 49% stake in KTG Industrial to develop its property at Yen Phong Industrial Park. ESR Cayman tied up with BW Industrial to develop 240,000 m2 of land in My Phuoc 4 Industrial Park, Binh Duong. SEA Logistic Partners and GLP entered a joint venture to develop an 89,000 m2 IP in Hai Phong. Big M&A deals sealed in the sector represent the confidence of developers and investors about the market potential. Insiders all expect a strong recovery as soon as the pandemic is contained.

Increasing occupancy rate and rental price

While the industrial land keeps expanding, Vietnam’s high occupancy rate of industrial properties, especially for those with proximity to big cities, has made the rate for land lease, ready-built factories (RBFs), and warehouses escalate relatively quickly. To help investors better understand their options when it comes to Vietnam’s industrial real estate, we provide an overview of the sector across three key economic regions (KER) in Vietnam.

Industrial Real Estate in the Northern Key Economic Region (NKER)

The NKER comprises seven cities and provinces, including Bac Ninh, Hanoi, Hai Duong, Hai Phong, Hung Yen, Quang Ninh, and Vinh Phuc provinces with a total industrial area supply of approximately 27,000 ha. As of H1/2021, this KER has 20,567 ha of leasable industrial land, of which 87% is occupied.

With a 99% occupancy rate, Bac Ninh has almost reached its full capacity. Hanoi follows closely with 91% occupied industrial area while Hai Duong, Hai Phong, and Vinh Phuc have more available land for new industrial settings.

The average cost for industrial land leasing for Hanoi and Bac Ninh, therefore, stood at the higher end compared to other provinces in the region, at about US$129/m2 and US$106/m2 respectively. The average cost for industrial land leasing in the NKER, as of H1/2021, was about US$100/m2 with an average year-over-year (YoY) price growth of 10.58%. Meanwhile, the average renting price for RBFs reached US$4.6/m2/month and increased approximately 12.20% YoY.

NKER Industrial Real Estate supply (H1/2021)

Due to its proximity to China, well-developed transportation networks, and new infrastructure development, the NKER is home to many big players in heavy industry, computers & electronics, and electrical equipment, such as Canon, Foxconn, Samsung, Honda, Hyundai, VinFast, and LC Electronics. Key IP developers in the Northern KEG include BW Industrial, Deep C, VSIP, Kinh Bac City, KTG Industrial, TNI, Viglacera, LOGOS, Mapetree, to name a few.

Industrial Real Estate in the Southern Key Economic Region (SKER)

The SKER extends over six cities and provinces, including Ba Ria - Vung Tau, Binh Duong, Dong Nai, Ho Chi Minh City, Long An, and Tay Ninh provinces. With a much larger natural land area compared to the Northern and Central KERS, the SKER proportionally possesses a much bigger area of industrial land - 47,057 ha. However, as with NKER, 87% of its industrial area has already been occupied. The average pricing in this KER also remains the highest, at US$115/m2 for industrial land lease and US$4.7/m2/month for RBFs. Among these, Vietnam’s economic center, Ho Chi Minh City, has the highest industrial land leasing rate in the whole country, at US$161/m2, followed by Long An (US$138/m2), Binh Duong (US$108/m2), and Dong Nai (US$104/m2). While standing at the lower end in the region in industrial land leasing price, Ba Ria - Vung Tau is catching up quickly with an exceptional jump of 45% YoY industrial land leasing price in 2021, making Tay Ninh the province with the lowest industrial land leasing rate. Ba Ria- Vung Tau, Long An, and Tay Ninh are also among the provinces with more available industrial land for lease.

SKER Industrial Real Estate supply (H1/2021)

As a leading zone for advanced manufacturing, hi-tech industries, and service sectors, the SKER is home to many big multinational corporations such as Intel, Biochip, Schneider Electric, Hyongsung, P&G, Unilever, Coca Cola, and CJ. Big players in the IP development sector in this area include VSIP, BW Industrial, Boustead, Long Hau Corporation, IDICO, ITA Express, Saigon VRG, Sonadezi, and Tinnghia, to name a few.

[To be continued]

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