Industrial Real Estate: A Highlight Amidst Pandemic

11:51:25 AM | 3/9/2020

While the segments of offices, serviced apartments, and resort real estate are experiencing the most difficult period in the past 10 years due to the Covid-19 pandemic, the industrial park market in Vietnam still sees some positive signals and is considered to be an ideal destination for the shifting FDI wave.

According to experts, industrial real estate will grow strongly from 2021 with the driving force of free trade agreements (FTAs), especially the EU-Vietnam Free Trade Agreement (EVFTA). Commitments to improve the institution and the business environment under EVFTA will create a great attraction for European investors to Vietnamese market. At the same time, in the wake of the U.S.-China trade war, many foreign companies have diversified their production and supply chains by moving their factories out of China to Vietnam. This is a great opportunity for the industrial park market in Vietnam to develop. This leads to a higher demand for warehouses, factories and industrial parks in general.

Mr. David M Jackson, General Director of Colliers International, said that the occurrence of the Covid-19 pandemic quickly changed the behavior of customers on a global scale. The concepts "work from home", "online meeting" were still quite unfamiliar and not used much in the previous time, but have now become too familiar and become an effective and timely transaction method. E-commerce channels are concentrating on developing at a faster rate than expected and are considered one of the most effective business platforms and achieving impressive growth during the difficult period of Covid-19. Besides, Vietnam is currently considered one of the fastest growing e-commerce markets in Southeast Asia, second only to Indonesia, attracting investment flows from foreign investors and enterprises.

According to a study by Colliers International, for the real estate market, the pandemic had slowed down construction and real estate transactions in the first quarter, then by the beginning of the second quarter, social distancing was required, which made the real estate industry in particular and the Vietnamese economy in general experience the most difficult time in the past 10 years. However, according to Colliers International's report on the real estate market in the second quarter of 2020, in addition to the declining figures, the industrial park market still recorded some positive signs and kept the rents quite stable.

By the end of June, Ho Chi Minh City remained the leading industrial park market in the South. Specifically, the average rental price for industrial land increased to US$162 /m2/period, 8% higher than the same period last year. Regarding the factory, the rental price also increased by about US$5/m2 /period. The occupancy rate was 85% thanks to the advantages of the largest city and the business center of the country that attracted many investments from domestic and international companies. Currently, the total number of industrial parks in Ho Chi Minh City is 18, providing nearly 3,700 hectares of industrial land for lease. Since May 2019, Ho Chi Minh City has asked the Government to approve a new industrial park project in Binh Chanh, (providing more than 380 hectares to the market). With new industrial park projects pending, including Phase 3 of Hiep Phuoc Industrial Park and the expansion of Northwest Cu Chi Industrial Park, the industrial market in Ho Chi Minh City is expected to further develop.

Currently, in Hanoi, there are 10 industrial parks in operation (providing 2,000 hectares), this number is expected to increase to 3,500 hectares in the near future. Chuong My, Thach That and Dong Anh are the districts with industrial parks accounting for 68% of the total area. 5 out of 11 new industrial parks are expected to open by the end of 2021. As for industrial clusters, there are currently 70 clusters (a total area of ​​1,337 hectares) with 3,100 factories. 9 new clusters were expected to enter the market in the first quarter of 2020 but have been postponed due to the impact of Covid-19. Despite the pandemic, the demand for industrial parks is still increasing in Hanoi. More than 50% of total industrial parks have occupancy rates of 100%. Hanoi is the city receiving US$646 million of capital, ranking 4th in the country. During the Covid-19 pandemic, although the country's FDI decreased, Hanoi recorded an increase in FDI compared to the same period last year. Hanoi is expected to double the number of industrial parks in the next two years, bringing the total number of industrial parks to 19.

Binh Duong province is asserting itself as a fast-growing residential location with a convenient location, close to Ho Chi Minh City. Binh Duong borders Ho Chi Minh City to the North with Thu Duc District and District 9. In recent years, many housing projects have been planned to provide thousands of apartments for residents as well as migrant workers. As Ho Chi Minh City becomes more and more crowded and developed, the rise in residential land prices as well as the rise in selling and renting prices have prompted real estate investors to start looking for alternative locations to increase values. The demographic movement of people living and working near Ho Chi Minh City has created a need to develop cheaper housing, a trend that is increasingly common as Vietnam modernizes. Binh Duong province is also aiming to attract more sustainable and high-tech industries in the future. However, with its reasonable supply and competitive rents, Binh Duong still has a high appeal to traditional industries such as apparel and fast-moving consumer goods. The built-in factory model in Binh Duong has many potentials, especially for tenants who want to design and build a warehouse suitable for their purpose. This trend is forecast to dominate areas near Ho Chi Minh City and Dong Nai, leading to a record increase in land prices in Binh Duong (nearly doubling in the past 5 years).

By Nguyen Mai, Vietnam Business Forum