The Shifting Landscape of Vietnam’s Industrial Real Estate in 2023

In recent discussions surrounding Vietnam’s industrial real estate market, KB Securities Vietnam (KBSV) raised concerns about the challenges expected throughout 2023. As cautious sentiment towards the global economy looms, the firm predicts that disbursed foreign direct investment (FDI) will remain steady compared to 2022’s high levels. However, Vietnam’s competitive edge remains intact due to its lower labor costs and relatively affordable land rental and investment expenses compared to other regions.

Nguyen Phuong Thao, asset management director at Gaw NP Capital, sheds light on the shifting dynamics of supply within this market. She forecasts a rise in the availability of ready-built factories and warehouses toward the end of 2023. This influx of new supply may exert downward pressure on rents and occupancy rates, potentially stabilizing or even decreasing rental prices. The competitive landscape is expected to intensify, with businesses inclining toward prudent evaluations of price, location, and supply chain logistics when considering new leases.

Notably, while new supply grows, Gaw NP Industrial reports positive rental inquiries for their projects in provinces like Thai Nguyen, Haiphong, and Ha Nam. The demand largely consists of companies from China, South Korea, and certain European markets, indicating that despite various challenges, small and medium-sized enterprises are still keen to secure warehouse spaces, albeit with careful consideration of costs.

The broader implications of external factors such as unpredictable developments in the global economy, especially concerning US Federal Reserve interest rate hikes and the introduction of a global minimum corporate tax, also pose significant hurdles. A report by Bao Viet Securities highlights these challenges as particularly relevant for attracting FDI, especially from multinational corporations targeting high-tech sectors.

Nevertheless, KBSV remains optimistic about the industrial property sector in 2023, citing crucial ongoing trends. The shift of manufacturing operations away from China is an ongoing phenomenon, with significant players like Foxconn, Luxshare, and Lego establishing operations in Vietnam. As FDI remains cautious, there is a notable shift towards enhancing the production capacities of existing firms and a rise in merger and acquisition activities involving small-scale businesses.

Infrastructure development is a key focus in this ongoing evolution. In the public investment plan for 2021-2025, infrastructure investment accounts for approximately 60% of the allocated budget. This emphasis on enhancing infrastructure is expected to indirectly boost the attractiveness of industrial parks (IPs), as improved logistics can greatly benefit industrial operations.

Investment into critical projects such as Chau Duc, Phu My 2, Huu Thanh, and Tan Phu Trung (near Ho Chi Minh City’s Ring Road 3) aim to rejuvenate industrial capabilities in various provinces. These strategic projects are positioned to make significant contributions to the industrial real estate landscape.

According to insights from Mirae Asset Vietnam Securities, holding a substantial land bank for lease is likely to expedite the capture of new investment capital. Companies like Viglacera, Kinh Bac Urban Development Corporation, and the Vietnam Industrial Park and Urban Development Corporation are well-poised in this scenario. Expansion endeavors will likely prioritize land leasing in IPs where factories are already established, as observed with Foxconn’s ongoing operations in Quang Chau IP and LG’s expansion efforts in Trang Due IP.

Vietnam boasts an impressive total of over 560 existing or planned industrial parks, spanning nearly every province and covering a vast industrial land area of over 58,000 hectares. As of late 2022, the occupancy rate in IPs across the nation exceeded 80%, with the southern provinces reporting occupancy as high as 85%. Notable cities like Hanoi and Ho Chi Minh City, along with key provinces such as Dong Nai, Bac Ninh, Bac Giang, and Binh Duong, have occupancy figures nearing full capacity. Among these, Binh Duong stands out with an occupancy rate exceeding 95% across 29 operational IPs.

Even with such high occupancy rates, the industrial property market experienced a rental increase of approximately 10% in 2022. The northern provinces saw rental rates averaging between $100-120 per square meter per lease term, while Ho Chi Minh City recorded the highest rents, varying from $180-300 per square meter per lease term. Other regions, such as Long An and Binh Duong, followed suit with rents ranging from $125-275 and $100-250 respectively.

By the conclusion of 2022, industrial parks and economic zones across Vietnam had successfully attracted over 10,000 domestic projects and nearly 11,000 foreign-led initiatives, amassing a total registered investment capital exceeding $340 billion. This impressive figure underscores the potential for continued growth and development within Vietnam’s industrial real estate sector, despite the looming challenges of 2023.