Industrial property price hikes unwarranted: Colliers Vietnam analyst

Industrial real estate rentals in Vietnam are increasing rapidly at about 10-15% per year, but the quality and diversity of products do not really match these price hikes, said Vu Minh Chi, senior manager of industrial services at Colliers Vietnam.

Which provinces and cities are attracting the most investment to industrial parks?

Vietnam's industrial real estate is concentrated in two main markets. In the north, industrial parks (IPs) are mainly located in Hanoi, Hai Phong, Bac Ninh and Vinh Phuc with a total area of 19,000 hectares. This market attracts many enterprises involved in heavy industry and high technology (electronic equipment), with an occupancy rate reaching about 91%. Future supply continues to grow towards Ha Nam, Hung Yen, Phu Tho and Thai Binh because these areas boast abundant land banks.

The southern region has 44,000 hectares of industrial land, mostly in Ho Chi Minh City, Binh Duong, Dong Nai and Long An. The occupancy rate is up to 92% in key locations. IPs and export processing zones (EPZs) in the south mainly attract enterprises in manufacturing industries such as rubber, plastic, textiles and electronics. The southern industrial real estate market is forecast to remain vibrant, with new supply revolving around major infrastructure axes including expressways and seaports.

The markets of Ba Ria-Vung Tau, Binh Phuoc and Tay Ninh are expected to grow faster in the coming time. In general, the land fund for industrial development in Vietnam is still abundant, but finding the right area as well as the process of setting up new operations are two key points affecting the investment decisions of FDI enterprises.

What are the advantages and challenges for Vietnam in attracting investment in industrial real estate?

Vietnam has many strengths in attracting foreign investment such as its favourable geographical location, political stability, high domestic consumption demand, and economic openness. Vietnam's labor productivity is assessed as better than some countries in the region thanks to its young and highly skilled workforce.

The Vietnamese government also pays great attention to investing in infrastructure to increase connectivity for exports, aiming to turn the country into a logistics center in the region.

In addition, land rents for industrial real estate development and IP land rentals in Vietnam are competitive compared to other emerging markets. Specifically, IP land rentals in the country is about 20% lower than in Thailand and Indonesia. The land tax in 2023 has been reduced by 30% while a proposal has been made to cut value added tax (VAT) from 10% to 8% to support production enterprises. All of this shows the attractiveness of Vietnam's industrial real estate market.

However, there are still some challenges related to global instability, regional competition, and the risk of "overheating growth". Geopolitical tensions continue to cloud the world economy, disrupting exports and the need to expand production.

Meanwhile, land rents for industrial real estate development and IP land rentals in Vietnam are increasing rapidly at about 10-15% per year, but the quality and diversity are not really commensurate with the price hikes. There are not many diversified industrial models in the market.

More broadly, in terms of state policy, it is necessary to further increase the efficiency of foreign investment in Vietnam by improving the investment environment, developing supporting industries, improving human resources, and increasing the ratio of science and technology in production values.

Some people argue that the development of IPs in Vietnam is not sustainable, making many investors, especially foreigners, hesitant. In addition, housing for experts and workers is not guaranteed. What do you think about this?

The sustainability factor or the environment - society - governance (ESG) criterion is increasingly important for foreign investors, especially manufacturers from developed markets such as North America, Europe, and Northeast Asia. Not only looking for land to set up factories, they also pay attention to the ecosystem surrounding the IP and the criteria for sustainable development like social infrastructure (education, healthcare, entertainment), emissions treatment, training of local human resources, residential areas and accommodation facilities, and housing for workers and professionals.

These items have not been given enough attention, and localities may consider adjusting their master plans or allowing businesses to invest in building such facilities to optimize private capital resources. In the eyes of foreign investment funds, the ESG criterion is a core element in their real estate investment strategies towards net zero emissions.

IPs and logistics facilities that meet these standards not only bring prestige and better returns to investment funds and save operating costs, but also attract more tenants than traditional industrial models. Therefore, foreign investment funds and developers are increasingly focusing on sustainability in the construction investment process.

Some notable names are Fraser Property Vietnam of Singapore; Gaw NP Industrial - a joint venture between leading Asian investment fund Gaw Capital Partners and Vietnamese real estate developer NP Capital; Daiwa House; and BW Industrial, which was founded on a shared vision between Warburg Pincus of the U.S. and leading Vietnamese industrial real estate developer Becamex.

Currently, many foreign investors have strict requirements on green standards for investment. What are these standards and how does Vietnam meet them?

Industrial real estate is a type of commercial property like office buildings, retail spaces or hotels. During the appraisal process, investors will "grade" the property using a scale to assess potential, risks and opportunities, as well as forecast cash flow and future income. Such a standard system also helps tenants be more proactive in finding a suitable location and IP. However, Vietnam does not have a standard IP classification system in the industrial real estate market.

Usually, a ratings system will feature many different criteria with the goal of classifying and ranking the value of the property and its competitiveness in the market. The three most common factors are quality, location and utilities. Particularly for industrial real estate, logistics is the fourth most important pillar as the location of an IP greatly affects the time for transporting goods between the delivery and receipt points, as well as transport costs.

What are your recommendations for attracting investment and improving the investment environment in IPs?

In the context of increasing competition, the quality of supply and the improvement of the investment environment are two key factors to help attract FDI enterprises to the industrial real estate market.

Firstly, the supply of leased land in IPs and EPZs has not yet met the requirements of investors in terms of location, area, infrastructure (especially social infrastructure), and lease terms. Even with an investment plan, many projects still face obstacles in land procedures, prolonging construction time and increasing site clearance costs, and other legal compliance costs. In order to improve the quality of supply, it is necessary to quickly remove land-related hurdles.

The development of diverse, modern and sustainable industrial models such as ecological and high-tech IPs, data centers, and smart warehouses should be encouraged to attract high-quality investments.

Secondly, licensing processes for foreign employees need to be streamlined in an open and convenient way for investors. The public data system should be transparent and standardized, and legal support services should be available. On the other hand, it is necessary to further improve investment incentives in the context that the global minimum tax, a new rule under the Organization for Economic Cooperation and Development's (OECD) Pillar Two, will be applied from 2024, which may reduce the attractiveness of Vietnam's tax incentives.

When regional competition is increasing, "carpet" campaigns to welcome investors need to include specific solutions and practical actions from localities, making them ready to pour capital quickly and deploy their projects as effectively as possible.

According to the General Statistics Office, the total FDI capital registered in Vietnam in the year to May 20 had reached $10.86 billion, down 7.3% over the same period last year. Meanwhile, the FDI disbursement in the period was estimated at $7.65 billion, down 0.8% year-on-year.