Industrial real estate still leads Vietnam market: experts

Despite difficulties, industrial park real estate still leads the market, attracting sustainable foreign direct investment (FDI) to Vietnam, said experts.

Growth potential

Le Trong Hieu, senior director at property consulting firm CBRE Vietnam, said that in addition to the manufacturing sector, industrial real estate attracts many domestic and foreign secondary investors to invest in warehouses for rent, contributing to diversifying products to serve the needs of tenants. In 2024-2025, industrial land and warehouses will continue to be well absorbed.

In 2023, industrial parks in the northern region leased nearly 900 hectares of industrial land and more than 700,000 square meters of warehouses, achieving an occupancy rate of over 80% for both types.

Similarly, those in the southern region leased nearly 600 hectares of industrial land and nearly 600,000 sqm of warehouses, equivalent to respective occupancy rates of 90% and 80%.

In Q1/2024, CBRE Vietnam continued to record large transactions in various industries and from diverse nationalities.

According to Hieu, infrastructure in Ho Chi Minh City and its surrounding areas has seen some clear improvements. Specifically, expressways connecting HCMC to the eastern and western provinces have been built and expanded, such as Bien Hoa-Vung Tau, and Ben Luc-Long Thanh.

In addition, Tan Son Nhat airport in HCMC has been expanded while Long Thanh airport in neighboring Dong Nai province is under construction. This creates more motivation and confidence for businesses to choose the southeastern region in general and HCMC in particular as investment destinations.

Positive signals in early 2024 included the microchip project of U.S firm Coherent, the project to build warehouses for rent by Singapore’s SLP in Dong Nai, and the beverage factory project of Suntory PepsiCo Vietnam Beverage, a joint venture between Japan-based Suntory and U.S.-based PepsiCo, in Long An province.

New supply of industrial land came from the expansion phases of large industrial parks such as VSIP III-phase 2 in Binh Duong; Long Duc and Amata Long Thanh in Dong Nai; and those in Long An.

David Jackson, CEO of Avison Young Vietnam, commented that in Vietnam, while housing and resort properties are more or less facing difficulties due to economic fluctuations or instability, industrial real estate still maintains its appeal to investors.

Rental demand is high but supply in the three main industrial hubs of HCMC, Danang and Hanoi is not enough to meet the demand. New industrial parks are being developed in neighboring provinces, according to Jackson.

Vietnam aims to develop a total of 558 industrial parks (IPs) by 2030. Laws and regulations on land, housing and real estate business have been updated and adjusted towards greater perfection and transparency. That means opportunities are still open for industrial park development. For businesses, providing the right products for market needs is the key to stable and sustainable development, stated Jackson.

In the medium and long term, this segment still has much room for development. Large manufacturers continue to see Vietnam as a potential candidate in their supply chain diversification strategies to minimize risks in an increasingly uncertain world, he said.

Recently, Chinese automobile manufacturer Chery, Chinese tech firm Victory Giant, Hyosung TNC of South Korea, and PepsiCo of the U.S. have leased land to build or expand factories in Vietnam.

The Avison Young Vietnam CEO noted that currently, industrial park developers such as Vietnam-Singapore Industrial Park (VSIP), Viglacera, Geleximco, and BW Industrial are accelerating in the project development race and paying increasing attention to quality.

Vietnam is emerging as a "connection hub" in global trade, with a geographical location well connected to the region, relative high stability, and abundant, cheap labor resources.

According to Jackson, the Vietnamese government has continuously improved the investment environment over the years, with a range of policies and incentives for FDI investors.

"Further promoting administrative reforms, improving legal and financial mechanisms, ensuring stable power supply as well as accelerating green transition will help the industrial real estate segment make more breakthroughs in the near future," he added.

Trang Le, head of research and consulting at JLL Vietnam, said that the industrial park market in southern Vietnam still takes the lead with abundant supply and a high absorption rate. However, it is growing very strongly in the North, with expanding industrial warehouses.

"Since 2018, with the appearance of big names like JV, Uber, Popping Cuts, and TK Maxx in Vietnam, it can be seen that the growth rate of this market is very fast," she said.

According to Trang Le, Vietnam is estimated to have about 14 million sqm of industrial warehouse floor space. Rents are still on the rise, despite the recent slowdown, and the occupancy rate is mostly above 80%.

"The occupancy rate of 80% is a positive number, in a market where supply is growing very fast and very strongly," she said.

Green, sustainable industrial parks attract FDI

According to the Avison Young executive, the industrial real estate market is transforming itself, with many plans to convert traditional industrial parks to modern and environmentally friendly ones.

However, Jackson noted industrial real estate in Vietnam still lacks diversity and rental prices are not really commensurate with quality. The number of projects achieving sustainable certification remains limited and niche segments such as cold storage, data centers and distribution centers are fragmented and small-scale.

Many industrial parks and export processing zones have not invested in surrounding infrastructure systematically and synchronously, while industrial land rental prices in Vietnam are increasing, he argued.

To go a long way, it is necessary to balance short-term, medium-term and long-term benefits to ensure effective rental projects and attract quality investors, Jackson noted.

Echoing that sentiment, CBRE Vietnam expert Hieu and Trang Le from JLL Vietnam said that sustainable development is the right path to help Vietnam's industrial parks continue to attract strong FDI capital flows and lead the market in 2024.

"FDI investors require high-quality standards, designs that meet real needs, and especially the sustainable development factor because customers in this segment are often foreign businesses. They have made certain global commitments on net zero and environmental protection," said Trang Le.

She also forecast that the Vietnamese market will welcome new investment contracts. The level of connection with the regional market is also stronger than ever. Therefore, Vietnam needs to strongly implement growth commitments as well as fulfill the net zero target by 2050.

Meanwhile, Hieu held that industrial land rental prices will continue to increase but at a more moderate level, creating conditions to promote expansion projects. At the same time, warehouse projects are increasingly focusing on construction quality to achieve green certificates, which will help them continue to attract projects from multinational corporations that prioritize environmental key performance indicators (KPIs).