Vietnam industrial property rentals set to rise 7-9% a year

Industrial real estate rentals can increase 7-9% per year in the coming years given continued robust inflows of foreign investment and limited new supply, according to property services firm CBRE.

A CBRE report says rentals for industrial land in the northern region could go up by 3-9% per year and 3-7% per year in the south. Meanwhile, the asking rents for ready-built warehouses and ready-built factories can increase by 1-4% per year in the next three years.

Industrial land rentals in tier-1 markets of the northern region like Hanoi, Hai Phong and Bac Ninh have experienced a slight increase of 1.2% quarter-on-quarter and 7.8% year-on-year in Q1/2024 for an average of $133/square meter.

Meanwhile, industrial land rentals in the southern region’s tier-1 markets have remained stable at 189/sqm/remaining term, showing a year-on-year growth of 2.4%.

Given the absence of new industrial parks (IPs) becoming operational in Q1/2024 and the continuous inflow of new tenants to existing IPs in tier-1 markets of the northern region, their occupancy rate increased by 1.3 percentage points (ppts) to reach 83%.

The absorption area during the quarter reached nearly 110 hectares, with notable transactions including the 10-hectare Victory Giant Technology factory in Bac Ninh province that specializes in printed circuit board (PCB) production.

Meanwhile, in the southern region, due to relatively limited availability of industrial land, the occupancy rate remained stable at 92% with an absorption area of just over 20 hectares.

In this situation, domestic and foreign manufacturers tended to expand to tier-2 markets like Ba Ria-Vung Tau and Tay Ninh, where industrial land supply was relatively abundant and rentals were more competitive.

Hi-tech investors seek ready-built facilities

Several large-scale projects were launched in the northern region in Q1/2024, mainly in Bac Ninh. With the introduction of new supply, the average occupancy rate in tier-1 markets of the northern region reached 70% for ready-built warehouses, a decrease of six ppts quarter-on-quarter, and 87% for ready-built factories, unchanged from Q4/2023.

Average rentals for ready-built warehouses and ready-built factories in tier-1 markets reached $4.7 and $4.9/sqm/month, respectively, indicating that they remained stable year-on-year for the former and rose 3.9 for the latter. Occupancy rates remained high for both facilities.

Positive demand-side developments were seen in the market from hi-tech manufacturers in semiconductors and motor technology, who continued to expand their Vietnam operations by leasing production facilities. VDL and Tecnotion, both from the Netherlands, are examples of this trend.

After a period of strong growth, the southern ready-built warehouses and ready-built factories markets did not see any new supply in the first quarter, with most projects still in the construction or completion phase. However, the absence of new supply had a positive impact on existing projects. Occupancy rates at ready-built warehouses and ready-built factories increased two ppts quarter-on-quarter, reaching 57% and 87%, respectively.

In terms of average rental rates, ready-built warehouses and ready-built factories rentals in the southern market remained stable in the first quarter, reaching $4.6 and $4.9/sqm/month, a year-on-year growth of 2.2% and 3.9%, respectively.

Like in the north, demand for ready-built warehouses and ready-built factories in the southern region also came from hi-tech manufacturers, renewable energy, as well as the expansion of e-commerce companies like JiaWei from Taiwan and Shopee from Singapore.

Cushman & Wakefield had reported in February that developers of IPs in the northern region were rushing to source land in order to take advantage of the investment wave that Vietnam is experiencing, especially in the electronics, computers and optical sectors.

With Vietnam upgrading relations with major economies recently, it is expected that the national economy, particularly manufacturing and industrial real estate sectors, will benefit and continue to thrive, CBRE said.

“To maintain its position as a destination for foreign investment in the region, Vietnam needs to continue focusing on improving infrastructure, including road connectivity, power grid, and industrial zones.

“It also needs to enhance the quality of its workforce and adjust relevant incentive policies accordingly,” commented An Nguyen, senior director and head of CBRE Vietnam’s Hanoi branch.

Registered FDI in Vietnam reached $36.6 billion in 2023, up 32.1% year-on-year, according to government data. Actual FDI rose 3.5% to $23.18 billion.

In Q1/2024, FDI commitments increased 13.4% year-on-year to $6.17 billion while realized FDI was up 7.1% to $4.63 billion.