Vietnam’s Industrial Property Rental Rates Expected to Increase by 7-9% Annually

Industrial real estate rentals in Vietnam are projected to see significant growth over the coming years, with estimates indicating increases of 7-9% annually. This optimistic outlook is attributed to robust foreign investment inflows and a limited supply of new industrial facilities, according to a report by property services firm CBRE.

Specifically, the CBRE report highlights that industrial land rentals in the northern region could rise between 3-9% each year, while the south may experience increments of 3-7% annually. Additionally, asking rents for ready-built warehouses and factories are expected to appreciate by 1-4% per year over the next three years, solidifying the upward trend in industrial real estate.

In the first quarter of 2024, tier-1 markets in the northern region, including major hubs like Hanoi, Hai Phong, and Bac Ninh, recorded a slight rental increase. The industrial land average price reached approximately $133 per square meter, reflecting a 1.2% increase quarter-on-quarter and a remarkable 7.8% increase year-on-year.

In contrast, the southern tier-1 markets have seen their industrial land rentals stabilize at about $189 per square meter, showcasing modest year-on-year growth of 2.4%. This stability can be attributed to limited availability coupled with strong demand.

Notably, there were no new industrial parks operational in Q1 2024, contributing to an increase in occupancy rates in northern tier-1 markets, which climbed 1.3 percentage points to reach 83%. The absorption area during this quarter was nearly 110 hectares, with significant transactions like the 10-hectare Victory Giant Technology factory in Bac Ninh, specializing in printed circuit board (PCB) production.

In the south, the relatively limited availability of industrial land also resulted in a stable occupancy rate of 92%, although the absorption area was just over 20 hectares. Given the tight conditions, many manufacturers are looking towards tier-2 markets like Ba Ria-Vung Tau and Tay Ninh, where land supply is more abundant and rental rates are more competitive.

Hi-Tech Investment Surge in Ready-Built Facilities

The northern region witnessed several large-scale projects launched in Q1 2024, primarily in Bac Ninh. With this new supply, the average occupancy rate for ready-built warehouses declined by six percentage points to 70%, while occupancy for ready-built factories remained stable at 87%. Average rental rates reached $4.7 for warehouses and $4.9 per square meter per month for factories, indicating stability for warehouses year-on-year and a 3.9% increase for factories.

A surge in demand is being fueled by hi-tech manufacturers in sectors like semiconductors and motor technology, as companies like VDL and Tecnotion from the Netherlands continue to expand their operations in Vietnam by leasing production facilities.

Meanwhile, the southern market for ready-built warehouses and factories saw no new supply introduced in Q1 2024, with most ongoing projects still under construction. However, this lack of supply positively impacted existing facilities; occupancy rates for warehouses and factories increased by two percentage points to 57% and 87%, respectively.

Rental rates for ready-built warehouses in the south held steady at $4.6 per square meter, while those for factories stood at $4.9, reflecting year-on-year growth of 2.2% and 3.9%, respectively. This stability in the southern region mirrors trends observed in the north, as demand continues to stem from hi-tech manufacturers, renewable energy sectors, and e-commerce expansions by companies such as Taiwan’s JiaWei and Singapore’s Shopee.

In February, Cushman & Wakefield reported that developers in the northern industrial park sector are actively sourcing land to take advantage of the current investment wave, particularly in the electronics, computer, and optical industries.

Amidst strengthening ties with major economies, experts believe that Vietnam’s manufacturing and industrial real estate sectors will continue to prosper. As noted by An Nguyen, senior director and head of CBRE Vietnam’s Hanoi branch, maintaining Vietnam’s competitive edge as a destination for foreign investment will require improvements in infrastructure, including road connectivity and power grids, alongside enhancing workforce quality and adjusting incentive policies.

Vietnam’s registered foreign direct investment (FDI) reached $36.6 billion in 2023, showcasing a 32.1% year-on-year increase, with actual FDI rising 3.5% to $23.18 billion. This trend continued in Q1 2024, with FDI commitments increasing by 13.4% year-on-year to $6.17 billion and realized FDI also showing a 7.1% rise to $4.63 billion.