Vietnam's market for factories, warehouses weathering pandemic better than other sectors

Singapore

VIETNAM'S industrial market continues to enjoy healthy demand even as other sectors of its real estate market flounder under the stress of Covid-19.

According to data from CBRE, asking rents in some industrial parks in Hai Phong, Bac Ninh and Hai Duong in the north and Ho Chi Minh City, Dong Nai, and Long An in the south increased from 20 per cent to 30 per cent year on year.

The ready-built factory and warehouse market meanwhile was stable due to the large supply added in 2019 and 2020, as well as delayed leasing activity due to travel restrictions.

"The strong growth of e-commerce and logistics companies since the outbreak of Covid-19 boosted demand for storage space and distribution facilities," said CBRE in its 2021 Ho Chi Minh City outlook.

Up to 20 per cent of total inquiries CBRE received was for the logistics sector. These included those looking for land to develop logistics assets and those looking for ready-built warehouses, Thanh Pham, associate director, head of research and consultancy at CBRE Vietnam, told The Business Times.

Data from JLL shows that land prices have reached a new peak despite the lingering effects of Covid-19.

According to their Q4 market brief, developers in the southern markets in particular maintained "strong bargaining powers" and raised their land prices to a new peak of US$109 per square metre per lease term in the southern region, up 7.9 per cent year on year.

Rents for ready-built factories also rose slightly to US$3.50-US$5.10 per square metre per month, backed by healthy demand from SMEs. This has been in part driven by foreign investment.

Trang Bui, head of markets at JLL Vietnam said they have noticed an "increasing amount" of foreign capital targeted at the industrial real estate and logistics sectors in Vietnam.

"We have calculated that there has been approximately US$2.2 billion of institutional real estate capital which has been raised through funds or allocated from corporate balance sheets to be deployed for industrial development strategies over the next two years," she said.

Ho Chi Minh City ranked fifth in CBRE's 2021 Asia-Pacific Investor Intentions Survey, which was conducted with 492 Asia-Pacific-based property investors. This is the first time Vietnam has entered the top 10 list of preferred investment markets.

In January, Intel Corporation announced it had invested a further US$475 million in Intel Products Vietnam (IPV), the largest assembly and test manufacturing facility in its assembly and test network.

The new investment, in addition to Intel's US$1 billion investment to build a chip assembly and test manufacturing facility in Saigon Hi-Tech Park, first announced in 2006, takes Intel's total investment in its Vietnam facility to US$1.5 billion.

In the warehouse space, CBRE noted that anecdotally, high-rise warehouses have begun to emerge to cater to the needs of e-commerce companies, in particular last-mile delivery locations.

Last year, international warehousing giants such as GLP, Logos, and JD.com invested heavily in the country and Vingroup, a major real estate developer, recently joined the market with two new industrial parks that are expected to be ready later this year.

CBRE's Mrs Thanh said: "The key advantage of Vietnam is its bordering location with China and close trading relationship with Chinese manufacturers.

In addition, the Vietnamese central government has been making significant changes to its investment policy, including tax and legal incentives for foreign investors to attract capital into the manufacturing industry."

In its report Rising star: Vietnam's role in Asia's shifting supply chains, The Economist Intelligence Unit said there will likely be a continuation of lucrative incentives for foreign manufacturing firms even with the paring back of incentives lower down the goods value chain.

Vietnam has made it clear that the eligibility for investment incentives will narrow to increasingly focus on higher value-added industries but progress is limited. But as highlighted by panellists at the EIU's webinar, there remains little value-add especially in the area of electronics goods.

Overall, both JLL and CBRE said they expect foreign investors will continue to watch the industrial and logistics space closely.

JLL's Ms Bui noted that Vietnam has a "significant supply shortage" for warehouses and factories, especially those in the "modern format".

"With regards to warehousing , we see there being a significant opportunity in this sector given strong demand fundamentals. There is currently over 1.5 million square metres of active enquiries (which is 30-35 per cent of the existing market).

"We expect there will not be an oversupply within the next three to four years and that demand will continue to accelerate, demanding further scalable warehouse development projects."

CBRE's Mrs Thanh echoed this sentiment.

She said: "The legal work for industrial property investment in Vietnam is complicated and the processing time takes quite long. It requires investors to take early initiative to hasten the investment process."