In recent years, the industrial real estate sector has emerged as a bright spot in the Vietnamese market, attracting a significant amount of foreign investment and showing strong potential for growth. However, some experts argue that the industry still faces several challenges that need to be addressed.
Top highlights
- Vietnam’s development plan for industrial parks reveals that there are currently 563 industrial parks with a total area of 210,900 hectares. Out of the 406 industrial parks that have been announced to come into operation, 361 are situated outside the economic zone, 37 are within the economic zone and eight are located in the border gate economic zone.
- The country has seen a growing interest from global manufacturers with significant investment needs, particularly in specialized products such as ready-built warehouses (RBW), ready-built factories (RBF), logistics, and data centers.
- Foxconn, the Taiwanese multinational electronics contract manufacturer, has signed a $62.5 million lease on 45 hectares of land in an industrial park in Vietnam’s Bac Giang province.
- Giant Manufacturing, also from Taiwan, has invested an additional $13 million in the VSIP2 industrial park in Binh Duong province
- Matsuya R&D, a Japanese company, has invested an additional $6.7 million in its production line in Dong Nai Industrial Park.
- Samsung has also increased its total investment in Vietnam to $20 billion, with a focus on developing AI and Big data.
- Furthermore, major companies such as Boeing, Coca-Cola, Meta, SpaceX, Netflix, and Apple are exploring business and cooperation opportunities in Vietnam, indicating the country’s rising attractiveness for global corporations.
- The market has experienced steady growth, with rental prices remaining stable at an average of $100-120/m2 per lease cycle.
- Ho Chi Minh City has recorded the highest average rent, ranging from $180-300/m2, followed by Long An with an average rent of $125-275/m2. In Binh Duong, rental rates range from $100 to $250/m2, while in Dong Nai they range from $100 to $200/m2. These rates are calculated for each rental cycle.
- In the northern industrial zones, the rental price is slightly lower, between $90-120/ m2 per lease cycle.
The Southern Region
A recent report by VNDirect on industrial real estate revealed that the total land area of industrial parks in southern Vietnam has increased to 41,950 hectares, a growth of 9.2% compared to the same period last year. Furthermore, the proportion of warehouses for lease increased to 66.6%, equivalent to 27,950 hectares, a rise of 8.2%.
The industrial real estate market in southern Vietnam witnessed a supply boom in the first half of 2022, which led to a shortage in the second half of the year when no new industrial parks were put into operation.
Dong Nai proved to be an attractive destination for investors in the latter half of the year, absorbing nearly 250 hectares of industrial land, which accounted for 48% of the total net absorption in the region.
The warehouse segment in the Southern market continued to show strong growth in 2022, with new supply primarily coming from modern warehouses that utilize dock levelers for cargo handling. Total import supply increased by 28.3% over the same period, reaching 3.87 million square meters.
As land rents and land-use fees rise in southern Vietnam, the market is being positioned to become a new production center, where RBF models are likely to become the preferred asset class in the near future, with a total market supply of around 4.8 million square meters.
The Northern Region
The Northern market recorded a significant increase in new supply during Q4/2022, with approximately 590 hectares of leasable area added, resulting in a 7.9% increase in the total leasable area, reaching 11,923 hectares. Hai Phong, despite having no new supply in 2022, still maintained its leading position in the Northern market, occupying 29.1% of the total land area.
Seven new warehousing projects were added to the Northern market in the second half of 2022, originating from locations such as Hai Phong, Bac Ninh, Hung Yen, and Hanoi. Similar to the South, property developers in the North also focuse on offering modern warehouses, as the new supply in the second half of 2022 has been recorded mainly from this type of warehouses.
Due to limited new supply, the average occupancy rate of RBF remained high, hovering around 97%.
Rising Challenges
New supply decreased due to delays in the approval process
Since the first quarter of 2022, no new proposals to establish industrial zones in both the South and the North have been put forth. Moreover, the number of new industrial parks included in the national master plan for development of industrial parks is limited.
This comes from the fact that the planning of industrial park development is still unstructured, mainly decided by localities. In addition, the change of senior leaders of many localities in the past year has slowed down the approval process of many projects, causing slow site clearance and creating overlaps in planning.
VNDirect’s forecast indicates that the supply of industrial real estate in the southern market is expected to remain limited from 2024 to 2027. During this period, the region is projected to have only 1,134 hectares of industrial real estate, a 76% increase compared to the previous report.
Competitive pressure to attract FDI from neighboring countries
In the first two months of 2023, FDI inflows into Vietnam weakened due to global economic uncertainties, such as slowing global growth, high inflation, and tightened financial market liquidity caused by the Fed’s interest rate hike.
Despite this, Vietnam and Indonesia still receive the most FDI inflows in the region. In particular, Indonesia’s Omnibus Law in 2020 has opened up many investment and operating opportunities for foreign corporations within the country. While Vietnam is focusing on becoming an electronics manufacturing center, Indonesia is aiming to develop an electric vehicle supply chain.
As the demand for electric vehicles and renewable energy grows, countries in the region such as Indonesia, Malaysia, Thailand, Philippines have actively promoted FDI attraction in these industries. In this trend, Vietnam is lagging behind other countries, making it less attractive to foreign investors.
The development of electric vehicles and semiconductors is expected to shape the investment landscape in ASEAN. To remain competitive in the fields of industrial real estate, Vietnam needs to act quickly to implement policies that promote investment in these sectors.
The Global Minimum Tax and its impact on Vietnam’s FDI attraction
According to VNDirect, the upcoming application of the Global Minimum Tax (GMT) is expected to pose challenges for Vietnam’s foreign direct investment (FDI) attraction, particularly in industrial parks.
Initiated by the Organization for Economic Cooperation and Development (OECD), the GMT is a global tax reform that targets multinational companies with revenue exceeding 750 million euros to ensure they pay at least 15% of taxes regardless of their location.
The new tax will be implemented by several OECD countries from the beginning of 2024. Applying the GMT too soon would result in Vietnam losing the advantage of preferential tariffs, while delaying the implementation would mean losing out on tax revenue.
Over 100 FDI firms are expected to be affected by the new tax, leading to billions of dollars in lost revenue for the national budget each year. To remain attractive to investors, VNDirect suggests focusing on developing industrial park projects with strategic locations, high-quality infrastructure, and full utilities.
Urgent need to improve transportation infrastructure
Despite allocating 5.8% of its total GDP to infrastructure development, which is a significant amount compared to other Southeast Asian countries, there is still a need for further improvement in highway projects, deep water ports, and service ports. The southern region, in particular, requires better transport networks, especially in terms of road infrastructure.
By enhancing infrastructure, Vietnam can create a convenient transportation system, making it more appealing to investors.
Conclusion
The demand for industrial real estate in Vietnam is on the rise due to the need for expansion from China to Vietnam and to meet the production supply chain from the Chinese side. Foreign manufacturers, especially from Asia, Europe, and the US, consider Vietnam as their first choice. As a result, the industrial real estate market, including industrial parks, factories, and ready-built warehouses, is expected to grow and attract investment in the future, making it a promising market.
Experts in the Automotive Industry Asia
You need one, but don`t want to hire one permanently?
Our solution: To rent our experts
- On pay-to-use basis
- Completely flexible
- Contract can be cancelled any time
Clearly represented reports and dashboards inclusive!