Savills: Industrial Real Estate: Demand Driving Prices

Industrial continues to be the ‘poster child’ for Viet Nam Real Estate, with mounting enquiries and increased capital market activity. Despite enforced travel restrictions, the China + 1 model is being increasingly pursued by manufacturers seeking to mitigate risk and diversify supply chains. John Campbell, Savills Industrial Services Manager, said increasing prices and occupancy levels in key industrial zones in Viet Nam may challenge multinational businesses requiring locations near major cities like Ha Noi and HCMC.

Average occupancy levels increasing significantly since 2018 has resulted in a growing supply gap and a clear need for additional development in key industrial provinces. In 2020, average occupancy in HCMC was of 88%, Binh Duong was almost fully occupied at 99%, Dong Nai moved up to 94%, Long An was 84%, with, in Ba Ria-Vung Tau average occupancy of 79%. In northern areas average occupancies were up to 90% in Ha Noi, 95% in Bac Ninh, 89% in Hung Yen, 82% in Hai Duong, and 73% in Hai Phong.

John Campbell shared: “Rising lease prices are a growing concern for low value-add manufacturing, or low margin industries such as textiles and furniture. The current rates are, for the most part, still acceptable to multinational high value manufacturers such as hi-tech, supporting industries, and automotive. Should prices continue on the same trajectory they have been on since 2018, regional competitiveness may slide unless more industrial land supply is deployed in key locations to accommodate demand and stabilize prices.”

The sudden increase in lease enquires for land, ready built factories, and warehousing has been accompanied by price escalations in IPs near major cities. In the north, prices in Ha Noi of US$129/m² were up 13.1% year on year (YoY), Bac Ninh with US$95/m² was up 9.2% YoY, Hung Yen prices of US$83/m² were up 6.4% YoY, Hai Duong at US$76/m² was up 15.1% YoY, while prices in Hai Phong of US$96/m² were up 3.2% YoY. In Thanh Hoa Province, the very competitive land lease cost of US$40–US$50/m² supported, in 2020, significant investment of US$349 million in total registered FDI, to rank 20 of the 60 provinces for FDI. Fourteen new projects provided newly registered FDI of US$240 million. Of this, US$218 million was into 13 manufacturing and processing projects. Four were from China, 3 each from Taiwan and Singapore, 2 from Hong Kong, and 1 from Korea. Foxconn moving into Thanh Hoa has ramped up province appeal for electronic component manufacturing, especially supporting suppliers to Foxconn. The appeal of competitive land lease prices and lower cost local labour is further enhanced by very appealing tax incentives.

In 2020, HCMC had lease prices of US$147/m², while in other southern IZs the Binh Duong price of US$107/m² was up 4.9% YoY, Dong Nai at US$98 was up 6.5% YoY, Long An with US$123/m² was up 7.8% YoY, and the US$65/m² price in Ba Ria-Vung Tau was up 18.1% YoY.

Mr. Matthew Powell, Director of Savills Hanoi commented: “Escalating demand in some provinces can also be explained by new developments, new infrastructure, new roads, ports, and airports. We have seen this phenomenon around the world, people are thinking there is light at the end of the pandemic tunnel. We are seeing increasing Real Estate sales in many different countries, including the UK and China.”

The Department of Economic Zone Management announced a further combined 201,000 ha over 561 new Industrial zones (IZs) are approved for master planning integration in addition to the 374 already established. Of these new IZs, the 259 utilizing 86,500ha are yet to be established and represent 43.1% of the total new area.

IZ infrastructure will also need to continue being improved. Policies, mechanisms, and management are continually being refined for greater efficiencies. These new projects and initiatives will be essential for accommodating the new wave of investments and industrial relocations. Location of the new IZs is also important as most Manufacturing and Logistics tenants still rely on key industrial provinces or Tier 1 locations.

Projects in Tier 2 regions will seek FDI with more competitive lease prices and vacant supply, but more investment into supporting infrastructure and intermodal transport networks are vital to the continued development of these emerging provinces.

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