Industrial property retains leading position in Vietnam

Industrial real estate is one of the fastest growing segments in the Vietnamese real estate market, playing an important role in promoting economic development and attracting foreign direct investment (FDI), according to the Vietnam Association of Realtors (VARS).

In recent years, industrial property has maintained its leading position in the Vietnamese realty market, drawing great attention from domestic and foreign investors, it said.

The association attributed this to a stable political environment, competitive labor costs, and tax incentives. The shift in global supply chains, especially from China, has also contributed to boosting industrial real estate demand in Vietnam, it added.

According to VARS, strong development of infrastructure, especially transportation and logistics infrastructure, with the government’s heavy investment in seaport, airport and road systems, has helped better connect industrial parks and domestic and foreign consumer markets.

This is one of the important factors for the boom in Vietnam's industrial real estate market, and offers an opportunity to expand export markets and attract investment. Vietnam is now a member of multiple free trade agreements (FTAs) such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the EU-Vietnam FTA (EVFTA), and the Regional Comprehensive Economic Partnership (RCEP).

VARS data showed that by the end of Q1/2024, the country had 418 industrial parks, including four export processing zones, in 61 out of 63 provinces and cities with a total natural land area of about 129,900 hectares.

The total industrial land area was about 89,200 hectares, including 371 industrial parks located outside economic zones, 39 in coastal economic zones, and eight in border gate economic zones.

Industrial parks and economic zones have attracted over 10,400 domestic investment projects and over 11,200 FDI projects, with total registered investment capital of over VND2,540 trillion ($99.8 billion) and $231 billion, respectively. FDI in industrial parks and economic zones has accounted for about 35-40% of the country's total registered FDI capital in recent years.

VARS said high demand has been pushing industrial park land rental prices up, with a stable increase of 8-12% year-on-year. The northern region witnessed the strongest price hike, with an average rental price of $135 per square meter per rental period. Meanwhile, the figure in the South was $188.

Demand for warehouses and ready-built factories for rent has also continued to grow strongly, mainly coming from the manufacturing industry, e-commerce, machinery, and electronic components.

The rental price for warehouses and ready-built factories ranged from $4-5 per square meter per month. Bac Ninh province in northern Vietnam saw the highest increase in warehouse rental prices, at $4.5-5.6 per square meter per month. It was followed by the northern port city of Hai Phong.

By 2023, industrial parks and economic zones across the country had created jobs for about 4.15 million direct workers, mainly in the southeastern and Red River Delta regions, accounting for 41.3% and 30.3% of workers in industrial parks nationwide, respectively.

Occupancy rates and rental prices have maintained stable growth. Operating industrial parks have an estimated occupancy rate of over 75%. The northern key provinces had a rate of 82%, while their southern counterparts were at 92%.

In particular, many enterprises operating in this field have reported positive business results, such as Sonadezi Chau Duc Shareholding Company, IDICO Corporation, Viglacera, Becamex IDC, and Saigon VRG Investment Corporation.

VARS assessed that Vietnam's industrial real estate market still has a lot of room for growth, promising to play a key role in Vietnam's economy. The development of the logistics industry will lead to a strong increase in demand for warehouses and logistics centers, especially when e-commerce booms. Domestic and foreign logistics businesses have also been actively expanding the scale and scope of their operations in Vietnam.

In addition, Vietnam has a golden population structure. A large, young workforce and competitive costs compared to many countries in the region present an opportunity for the industry to break through and develop rapidly.

Despite strong growth and a bright outlook, VARS noted the Vietnamese industrial real estate market still faces many challenges.

Specifically, key economic areas such as Ho Chi Minh City, Binh Duong, and Dong Nai are encountering difficulties in expanding industrial land funds due to rapid urbanization and high competition for land.

Other challenges are poor infrastructure, cumbersome administrative procedures, inconsistent policies related to industrial park development, and increasing land and construction costs, the association said.

Furthermore, Vietnam still lacks high-skilled labor, and shows limited environmental management. It also faces competition pressure from other regional countries with preferential policies and well-developed infrastructure such as Thailand, Indonesia, and Malaysia, it said.

VARS stated that the government needs to continue promoting investment and upgrade transportation infrastructure, logistics, and industrial utilities to support the development of industrial parks.

It is necessary to continue reforming administrative procedures, creating a more favorable investment environment for businesses, and invest in education and vocational training, especially in the fields of high technology and automation, to improve the quality of human resources.

“We must implement stricter environmental management measures and develop ecological industrial parks to minimize negative impacts on the environment,” it noted.

At the same time, Vietnam should create attractive and stable preferential policies to attract FDI, as well as strengthen international cooperation to learn and apply successful development models.