The Growing Market for Ready-Built Factories in Vietnam

The ready-built factory (RBF) market is witnessing significant growth in Vietnam, fueled by rising demand from international manufacturers and evolving economic factors. This landscape is primarily shaped by the steady increase in industrial land prices, significant investment in manufacturing, and changing consumer demands. As we delve deeper, we will explore the trends, challenges, and forecasts for this vibrant sector.

Rental Prices and Market Dynamics

According to a recent report by CBRE, a leading commercial real estate services provider, industrial land prices in Tier 1 markets in northern Vietnam have seen a modest increase. In the second quarter of 2024, prices rose by 0.3% quarter-on-quarter and 4.5% year-on-year, reaching an average of $134 per square meter. Meanwhile, the southern Tier 1 markets maintained stability, with prices holding steady at $173 per square meter, reflecting a slight 1% increase year-on-year.

Dang Trong Duc, CEO of KTG Industrial, has highlighted the current challenges that the industrial real estate market faces. “Rising land prices are largely driven by supply shortages and escalating construction costs, partly due to supply chain disruptions post-pandemic,” he explains. Despite these hurdles, KTG Industrial remains dedicated to attracting international manufacturers by maintaining competitive rental prices and optimizing construction processes.

Recent Absorption Rates and Key Players

The first half of 2024 saw over 220 hectares of industrial land absorbed in the northern region, keeping the occupancy rate at 83%. The demand is particularly robust among electronic manufacturers such as Victory Giant and Foxconn, which continue to make significant investments in areas like Bac Ninh province.

In the southern market, occupancy rates are strong as well, reported at 89% with over 259 hectares absorbed in the same period. An observable trend is the shift of both domestic and international manufacturers towards secondary markets, such as Long An and Ba Ria – Vung Tau provinces, where competition is lower and industrial land is abundant.

Construction Projects on the Rise

The first six months of 2024 have marked the commencement of several large-scale factory projects in both regions. Notable developments include the Pandora factory in Binh Duong province, the Suntory Pepsico factory in Long An province, and the SK factory in Haiphong. These projects are a testament to Vietnam’s strengthening manufacturing sector.

Warehouse and Factory Market Segment Analysis

Within the ready-built warehouse (RBW) and ready-built factory markets, CBRE reported that over 225,000 square meters of new space was completed in the northern Tier 1 markets in the first half of 2024, with factories comprising 95% of this total. The absorption rate for RBFs exceeded that for RBWs by more than four times, reaching an occupancy of 89%.

However, while rental prices for RBFs increased by 1.9% year-on-year to $4.9 per square meter per month, the RBW segment saw a slight decline, with rents dropping by 1% to $4.6 per square meter per month. This shift is primarily driven by the robust demand from sectors like electronics, furniture, and logistics.

Competitive Landscape and Tenant Preferences

Despite a lack of new supply in the RBW sector during the first half of 2024, occupancy rates climbed to 63% due to significant deals in urban centers like Ho Chi Minh City and Long An. Meanwhile, the RBF market experienced an influx of over 371,000 square meters of new space, resulting in a slight decrease in occupancy rate to a healthy 81%.

According to Duc, the demand for RBWs is growing at a slower pace due to a sluggish domestic consumer market and ongoing challenges in transportation infrastructure around Hanoi and Ho Chi Minh City. In contrast, the RBF segment continues to thrive thanks to the “China+1” supply chain strategy and robust growth in Vietnam’s manufacturing sector, which recorded a 10% increase year-on-year.

Future Projections for Industrial Land and Rental Prices

Looking ahead, CBRE projects that industrial land rental prices will continue to rise between 5-8% annually in the northern region and 3-7% in the south over the next three years. For the RBW and RBF segments, a slight increase of 1-4% annually is expected, with RBF prices forecasted to grow at a higher rate.

An Nguyen, a senior director at CBRE Vietnam, commented on the evolving landscape, noting that “the expansion of transportation infrastructure is pushing the industrial real estate market into new areas, including Tier 2 markets and border economic zones.” As both existing and new investors capitalize on these trends, Vietnam’s industrial real estate is poised to thrive in the coming years.

In summary, the ready-built factory market in Vietnam is positioned for growth, marked by rising rental prices, increasing construction projects, and a dynamic demand landscape where international manufacturers are eager to establish a foothold in this rapidly developing region.