Industrial Property Resilience Amidst COVID-19 in Vietnam
Despite the resurgence of COVID-19 in Vietnam, the industrial property sector is demonstrating remarkable resilience. The establishment of new industrial zones and the initiation of key industrial projects signal a positive outlook in a challenging environment, as reported by Savills Vietnam.
Current Climate of the Pandemic
The ongoing fourth wave of COVID-19, which began in late April, has led to stringent measures in several southern provinces, including flight suspensions to and from Ho Chi Minh City. These measures are part of the government’s Directive 16 aimed at curbing the virus’s spread. Consequently, developers face significant hurdles in leasing properties, as travel restrictions prevent potential tenants from conducting site visits.
According to John Campbell, Manager of Savills Vietnam’s Industrial Services, these travel limitations create difficulties but also ignite a determination within the industrial sector to navigate through the current challenges. He notes that the ongoing vaccination rollout and the prospect of a vaccine passport program are fostering renewed confidence among landlords and investors.
Surge in Foreign Direct Investment
Interestingly, the sector has not only maintained its stability but also witnessed significant activity in mergers and acquisitions (M&A) and a favorable industrial land supply. Vietnam’s foreign direct investment (FDI) saw a notable rise of 3.8% year-on-year, accumulating $10.5 billion in the first seven months of 2021. The processing and manufacturing sectors led this growth, attracting $7.9 billion—47.2% of the total FDI. Real estate followed closely, with an impressive $1.16 billion influx.
The interest from foreign investors is particularly pronounced, as major manufacturing projects have originated from Hong Kong and Singapore, targeting regions like Quang Ninh and Bac Giang provinces. This is a clear indicator of confidence in Vietnam’s industrial capabilities even amid health crises.
Noteworthy M&A Activity
In terms of M&A activity, several significant deals are worth highlighting. Boustead Projects Co. Ltd., for instance, signed an options agreement to acquire a 49% stake in KTG & Boustead Industrial Logistics JSC. This partnership aims to manage 13 real estate assets valued at approximately $141 million, covering around 840,000 square meters of land.
Additionally, ESR Cayman Limited, a prominent logistics real estate platform, and BW Industrial Development JSC have teamed up for a joint venture to develop 240,000 square meters in the My Phuoc 4 Industrial Park near Ho Chi Minh City. Such collaborations demonstrate the commitment of seasoned real estate players to invest in Vietnam’s growing industrial sector.
Emergence of New Projects
New industrial projects are also on the horizon, enhancing the landscape further. Logos Property is set to launch an 81,000 square meter facility in the Vietnam-Singapore Industrial Park (VSIP) Bac Ninh 1, anticipated to begin operations in the fourth quarter of 2021. This reflects the sustained interest from developers to expand operations, despite existing challenges.
Moreover, KCN Vietnam Group JSC has made headlines by acquiring a significant 250-hectare land plot with a projected investment of $300 million. This initiative aims to create premium, sustainable factories and warehouses for rent throughout Vietnam, specifically in Bac Giang, Hai Phong, Hai Duong, Dong Nai, and Long An provinces.
Shifts in Investment Strategies
Recently, there has been a noticeable trend of investors actively seeking opportunities in the sale-leaseback sector. Campbell indicates that this strategy has garnered attention as companies expand or relocate their production due to the pandemic’s restrictions. Sale-leaseback arrangements allow sellers to liquidate assets while still retaining operational control—an attractive option for many businesses looking for financial flexibility.
Historically underutilized in Vietnam, this strategy is gaining traction. For instance, DKSH’s warehouse in Binh Duong was one of the first high-profile sale-leaseback deals in 2017. Similarly, Mapletree Logistics Trust from Singapore invested $43 million in leasing back Unilever’s warehouse in 2018, demonstrating the viability of this financial model.
Conclusion
With ongoing investments and strategic adaptability, Vietnam’s industrial property sector is proving its durability. As it continues to evolve, the sector is likely to play a critical role in the country’s economic recovery and growth in the post-pandemic landscape.