Vietnam’s Evolving Landscape for Foreign Direct Investment

By Lien Thuong, Minh Hue
Thu, July 11, 2024 | 4:50 pm GMT+7

Vietnam is at a pivotal moment in its economic development, particularly in the realm of foreign direct investment (FDI). Major foreign investors are not abandoning the country but are strategically shifting their focus toward burgeoning sectors such as semiconductors and artificial intelligence. This insight, shared by Trang Bui, the country head of Cushman & Wakefield Vietnam, highlights a dynamic investment climate that is adapting to global economic shifts.

A Shift in Investor Strategy

At a recent press conference centered on real estate developments in Ho Chi Minh City (HCMC) and its surroundings, Bui emphasized that while there is indeed a wave of downsizing and relocating factories, this should not be misconstrued as a retreat from Vietnam. Instead, investors are recalibrating their strategies to align with emerging market opportunities.

Bui remarked, “There is a wave of downsizing and relocating factories, but it does not mean the ‘FDI eagles’ are leaving Vietnam.” Such shifts are not surprising given the myriad challenges posed by the global economy and the ongoing evolution within the Vietnamese market itself.

Industrial Property Market Insights

Bui revealed that Vietnam’s southern industrial property market is grappling with a shortage of land resources. However, the demand for ready-built factories is witnessing a notable upswing. “There is a land fund scarcity,” she pointed out, “forcing investors to make recalculations and find solutions.”

With rising FDI levels flowing into manufacturing and processing industries, Bui anticipates intensified competition in the semiconductor sector. The Asia-Pacific region is currently embroiled in a fierce race for dominance in both semiconductor and AI markets, with India taking the lead due to its favorable policies. Nevertheless, Vietnam is emerging as a promising destination for multinational companies seeking to invest in these high-tech industries.

The Landscape of Foreign Investment

An interesting observation made by Bui was the contraction of certain brands, such as Unilever, in the face of effective competition from domestic corporations like Masan. However, she noted that this consolidation does not indicate a downturn in foreign investment; rather, international semiconductor businesses are actively expanding their footprint in Vietnam.

Cushman & Wakefield Vietnam is closely collaborating with various U.S. partners eager to penetrate the Vietnamese market. “The outlook for Vietnam’s industrial real estate market is still very bright,” Bui assured attendees.

Recent Developments in Industrial Parks

A notable highlight was the inauguration of the Thu Thua Industrial Park in Long An province, which adds approximately 115 hectares of rental space to the market. Furthermore, BW Industrial, the park’s developer, has rolled out two new ready-built factories and warehouse projects in the southern industrial hub of Binh Duong, totaling 300,000 and 19,000 square meters, respectively.

Encouragingly, the first half of the year saw net absorption of industrial land reach 79 hectares. The provinces of Binh Duong, Long An, and Ba Ria-Vung Tau were particularly active, each registering over 20 hectares in transactions.

Warehouse and Factory Absorption Rates

In parallel with this growth in land transactions, ready-built factories experienced an absorption of 172,000 square meters, primarily in Binh Duong province, while ready-built warehouses accounted for around 74,000 square meters.

According to Cushman & Wakefield, this positive market sentiment is fueled by new FDI inflows and heightened domestic consumption, spanning a range of industries — from traditional sectors such as plastics and vehicle manufacturing to high-value fields including electronics and pharmaceuticals.

Pricing Trends in Industrial Real Estate

As demand escalates, the pricing landscape of industrial real estate is also evolving. The average primary offering price for industrial land has risen to $176 per square meter per lease cycle, marking a quarter-on-quarter increase of 2.9% and a year-on-year increase of 4.8%. Concurrently, factory rents have incremented by 1.1% quarter-on-quarter and 2.5% year-on-year to reach $4.7 per square meter per month, while warehouse rental prices have hit $4.5 per square meter per month, up 1.2% year-on-year.

Future Prospects for Industrial Land

Looking ahead, Bui’s team projects that about 6,200 hectares of industrial land will be made available in the Southern Vietnam real estate market over the next three years. The supply of ready-built factories and warehousing is estimated to reach 1.4 million and 1.9 million square meters, respectively. Notably, 55% of this upcoming supply will be concentrated in Dong Nai province, which is poised for significant growth with the forthcoming Long Thanh International Airport.

Vietnam’s ability to adapt to changing economic conditions and its strategic focus on key industries positions it as a burgeoning hub for foreign direct investment. The focus on semiconductors and AI, coupled with local competitive dynamics, is setting the stage for a vibrant industrial future.