Savills recent whitepaper describes why demand is growing for industrial real estate and what’s behind heightened capital markets activity. Mr. Matthew Powell, Director of Savills Hanoi and Mr. John Campbell, Savills Vietnam Industrial Services Manager, review major market developments over the past 9 months and the outlook for 2021.
Average occupancies in Viet Nam industrial parks (IPs) are high. In northern areas they are around 90% in Ha Noi, 95% in Bac Ninh, 89% in Hung Yen, and 73% in Hai Phong. In HCMC they are up to 88%, against 79% in Ba Ria- Vung Tau, 84% in Long An, 94% in Dong Nai, while in Binh Duong the average is running at 99%.
As the demand – supply gap widens prices are moving up. In HCMC, leases have reached US$147/m2 and US$123/m2 in Long An; while in Ha Noi they are up to US$129/m2 and US$95/m2 in Bac Ninh.
Mr. John Campbell, Savills Industrial Services Manager commented: “Certainly, in some provinces, rising prices will affect occupancy rates. If they go too far above average, they will become a major concern for higher value investors in electronics and high-tech industries. However, there are a further 561 industrial zones (IZs) in planning or development. When their supply starts coming online, it will be interesting to see how that helps the law and land lease prices. But for now, occupancy in the key provinces is high, which means that any remaining land there will almost inevitably be priced higher.”
Mr. Campbell said a major outtake from the first 9 months of 2020, and looking forward to 2021 and 2022, is the majority of interest in industrial real estate will be in new supply and the "China + 1" model.
“We anticipate increased emphasis on both. These will be increasingly sought by multinational manufacturers as corporations seek to mitigate risk and diversify supply bases. As one of the leading alternatives outside of China we expect this will be a major focus in Viet Nam for some time. In terms of land supply, we are having some exciting projects coming live next year, especially in northern Viet Nam, which will help attract a great deal of foreign investment. Vinhomes has been developing new industrial parks in Hai Phong. We have new industrial parks from Kinh Bac and TNI Holdings. These are opening up much needed supply in provinces like Bac Ninh and Vinh Phuc. It will certainly be interesting to see how many high value investments we can get into those locations.”, Mr. John Campbell affirmed.
The Department of Economic Zone Management (DEZM) announced a further 561 IZs over a combined 201,000 ha are approved for master plan integration. Of these new sites, 259 utilizing 86,500ha and representing 43.1% of new supply are yet to be established.
Over 9M/2020 China, Hong Kong, Taiwan and Singapore have been leading FDI volumes into national key economic regions. To attract more investment into Viet Nam, legal frameworks supporting IZ development will need further refinement. Greater support wil be needed for niche products such as ecological IPs, supporting IZs, associated IZs, and combined IZ & urban area service models. As 4.0 industries and AI evolve, demand for specialist educated and skilled labour will increase. To effectively accommodate higher-value projects it is essential to continue investing in education, particularly IT, coding and mathematics.
Infrastructure and transportation are two of the biggest areas Viet Nam need to improve upon. Mr. Matthew Powell, Director of Savills Hanoi shared: “Although infrastructure in Viet Nam has really improved, there is still some way to go. We still slightly below the quality average for infrastructure in ASEAN. The same can be said about real estate. However, the significant opportunity the Vietnamese government will realize by further improving infrastructure networks is far more FDI into industrial development.”
“The government has provided multiple incentives across the various national economic zones. Viet Nam has become very attractive to global investors. Its position on the East Sea, the labour force, costs of land and operations, and highly competitive investment policies all combined make for a very appealing package. Rapidly moving ahead in infrastructure to make sure Viet Nam exceeds the average in Asia, and not just catching up to Indonesia, Thailand and other ASEAN countries will have extensive benefits.”
Mr. Powell went on to say: “Most industrial real estate has been developed by Vietnamese investors and, over the last 20 years, their quality has been really good. Over the last 10 years this has been further supplemented by partnerships and developers. There has been much more interest over the last 3 years. Now we see quality improvements in Industrial real estate and far more sophisticated developments. This includes low-value industries like garments or footwear, but more importantly the high-tech sector which requires far more specialized Industrial property. We are also anticipating far greater development of data centres and utility systems as things start falling into place.”