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JLL: Industrial property holds promise

Released at: 08:19, 16/06/2018

JLL: Industrial property holds promise

Photo: Duc Anh & JLL

Vietnam possesses several advantages that make it an attractive destination for industrial development.

by Trang Le, Manager, Research & Consultancy, Vietnam, JLL

The industrial property market in Vietnam, including industrial land, ready-built factories, warehouses, and other logistics properties, is in the nascent stages of development and is strongly featured by the following: industrial parks and other industrial properties compete with each other mainly on location rather than on standards of infrastructure, buildings, and services; industrial parks and other industrial properties are mostly sparse and major industries are not gathered together for development on a regional basis; and major occupiers are predominantly in labor-intensive industries, including textiles and apparel, food, wooden products and furniture, and rubber and plastic products. The contribution of the value-added sector remains insignificant.

Given Vietnam’s improving market fundamentals, it stands a good chance of winning market share as its regional peers shift towards more mature industrial development. There are several notable advantages that make Vietnam an attractive destination for industrial development.

Strategic location: Vietnam’s advantageous geographical location, with access to the world’s major sea trade routes, offers the country huge opportunities to develop maritime transport, particularly for logistics services. Its close proximity to China also makes it a worthy option for manufacturers looking at alternative locations in Southeast Asia because operating costs in China have increased continuously over recent years.

Strong economic growth: The key drivers of Vietnam’s economic growth are urbanization, FDI, growth in the manufacturing sector, and growth in the middle-income population. These factors have created spillover effects that drive the country’s demand for international transport and logistics services.

Thriving middle-class and favorable demographics: As Vietnam’s economy moves from agriculture to manufacturing and services, household incomes are likely to increase. According to the Brookings Institute, Vietnam is expected to enjoy the strongest growth in the middle-income population bracket, with a 19 per cent CAGR (compound annual growth rate) from 2018-2020; up 14 per cent from the previous decade. Figures from the General Statistics Office show that Vietnam is experiencing a “golden population structure”, with the average working age ranging from 20 to 50 in 2016 with a median age of around 30. A young population coupled with growth in average incomes will support purchasing power and help the country remain an attractive destination for both local and foreign investors.

Low cost: Vietnam has become more attractive to foreign manufacturers, their associated suppliers, and support industries thanks to its existing variety of tax incentives and low labor costs. This in turn will allow further potential growth in the industrial sector generally and logistics services in particular.

In comparison to its regional peers, Vietnam’s industrial property market is still relatively immature. However, as it steadily approaches the growth stage of its industrial market evolution, specific areas of opportunity are beginning to emerge as it develops an intermediate product and value-added offering. Moving from more labor-intensive to more capital-intensive and automated resources, JLL anticipates that the typology of the industrial offering will steadily become more sophisticated as occupier requirements develop and industrial market demand moves from its current low specifications to higher specifications needs.

A significant area of land is planned for industrial development to 2020, at nearly double the current market size. Thus, major opportunities exist in Vietnam for both existing players and potential new market entrants to access potential land banks and capture market share.

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