Bright outlook for Vietnam industrial real estate sector amid FDI rise

Industrial park developers in Vietnam are expecting higher profit growth this year after disbursed foreign direct investment (FDI) in the first five months reached an estimated $8.25 billion, up 7.8% year-on-year - the highest figure in five years.

According to their Q1/2024 financial statements, many industrial real estate developers recorded positive business results.

Top developer Becamex IDC, listed on the Ho Chi Minh Stock Exchange (HoSE) as BCM, reported Q1 revenue of VND812 billion ($31.9 million), up 2.6% compared to the same period last year.

Its after-tax profit hit VND118 billion ($4.64 million), up 29%, mainly thanks to the revenue contribution of Bau Bang Industrial Park in Binh Duong province with a higher gross profit margin.

Viglacera (HoSE: VGC) posted a revenue decrease of 4% to VND2,664 billion ($104.7 million), but its after-tax profit surged by 57% to VND237 billion ($9.3 million). Rising rental prices in the industrial park segment was the driving force.

Idico (HoSE: IDC) reaped VND2,467 billion ($96.94 million) in revenue, double the figure in the same period last year, and VND695 billion ($27.3 million) in net profit, 4.7 times higher. Its revenue hike was derived from the handover of industrial park land under previously signed contracts and 1.45 hectares rented to Japan’s Aeon Co., Ltd.

Many other businesses reported positive business growth compared to their low figures in the same period last year, such as Saigon VRG Investment Corporation (SIP), Sonadezi (SZN), Sonadezi Chau Duc (SZC), and Tan Tao Investment and Industry Corporation (ITA).

Meanwhile, Kinhbac City Development Holding Corporation (KBC) posted disappointing results. Revenue plunged by 93% in Q1 to VND152 billion ($5.97 million) with a net loss of VND86 billion ($3.38 million), compared to a profit of VND941 billion in the same quarter last year.

The company explained that during the period, revenue from its industrial park business fell and there was no income from investment transfers as there was last year.

Following these largely positive results in Q1, industrial real estate businesses have all raised their profit targets from 2023. For example, Viglacera plans a profit increase of 28% to VND1,216 billion ($47.78 million) this year, Idico is aiming for a 40% rise in profit to VND2,502 billion ($98.31 million), while SIP, SNZ and SZC have all set 20% growth targets.

Bright prospects for northern industrial park market

According to the General Statistics Office, total FDI registered in Vietnam (including new registrations, additions, and capital contributions/share purchases) in the year to May 20 had reached $11.07 billion, up 2% year-on-year.

The five-month disbursed FDI is estimated at $8.25 billion, up 7.8% year-on-year - the highest figure in five years.

Broker VPBank Securities (VPBankS) said that in recent years, Vietnam has continued to improve its value chain and is about to benefit from the "China + 1" strategy thanks to the U.S.-China trade war, investors’ diversification, and the shifting of production value chains from China towards countries in Southeast Asia.

It cited property services firm CBRE's data which shows in 2023, investors from mainland China, Taiwan and Hong Kong accounted for 47% of those in demand for industrial park land, up 32% compared to 2022. This signals a strong shift from China in the near future.

More and more technology/electronic manufacturing corporations have specific plans to shift their production value chains from China to Vietnam, such as Apple, Dell and Google, VPBankS said, adding the northern industrial park market will be a potential destination amid this trend.

The northern and southern industrial park markets are showing opposing trends in supply. There is still a scarcity of new supply in the southern market with no new projects set to come online soon, whilst the overall occupancy rate is 89%.

In contrast, the northern market posted abundant new supply in the first quarter. In Q2, three projects namely Tien Thanh and Nam Dinh Vu - phase 2.2 in Hai Phong city and the Hung Yen Industrial Park No. 3 in Hung Yen province will provide an additional 597 hectares of rental area.

Except for Hanoi, which has run out of rental space, rental prices in the northern market are estimated to increase by 7% over the same period last year. Hai Duong, with a low base, has ample room for price hikes, with an impressive increase of 14% in Q1.

VPBankS estimated that the northern industrial park market will record new supply of 3,039 hectares and 2,268 hectares in level-1 and -2 areas, respectively.

Emerging level-2 areas such as Quang Ninh, Vinh Phuc and Bac Giang are attracting FDI capital. They are capable of providing high-quality supply with competitive rental prices, approaching those in level-1 areas.

Investors should pay heed to businesses that own large existing or future land funds in the northern region and have experience in developing industrial parks, meeting the needs of electronics producers such as KBC and IDC, the broker advised.