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Industrial real estate winning favor

Released at: 12:49, 05/10/2016

Industrial real estate winning favor

Photo: Viet Tuan

Exits from China good news for Vietnam's IPs.

by Quynh Nguyen

As a neighboring economy with convenient road and waterway links to China, Vietnam stands out as an ideal destination for foreign companies seeking better production factors, especially as regards labor costs.

The latest report from Savills released on October 4 noted that labor costs in China have risen substantially in recent years and put pressure on labor-intensive industries such as garments and textiles and even processing and manufacturing. The country is facing an outbound wave of foreign companies seeking better production factors.

“Primary support factors include ASEAN membership, FTAs with large export markets, and labor costs that are less than half of those in China,” Savills’ analysts wrote.

Vietnam’s industrial real estate sector has developed rapidly. In the first half of this year, six newly-operational industrial parks (IPs) supplied approximately 700 ha of leasable area, bringing the total to 218 industrial parks on 59,700 ha with a leasable area of approximately 41,000 ha.

The total leased area in the first half was 28,500 ha, an increase of 5 per cent since the end of 2015. Despite supply growth, occupancy increased to 70 per cent due to the new wave of FDI inflows, 3 ppts higher than at the beginning of the year.

Ho Chi Minh City and Binh Duong, Dong Nai, and Long An provinces have quickly developed their industrial real estate sectors. Though having international airports and seaports, most Ho Chi Minh City IPs are located in semi-rural districts. The focus has steadily shifted towards high-tech industries, while labor- and land-intensive industries are encouraged less.

IPs in Ho Chi Minh City have the most convenient locations and therefore the highest rents in the south. As a result of higher labor costs, however, newly-developed IPs are pressed to increase occupancy.

The processing and manufacturing sector received only $66 million in registered FDI in the first half, or 13 per cent of the total inflow to Ho Chi Minh City.

Binh Duong and Dong Nai have consolidated their positions as industrial centers in the south, with each attracting approximately $1 billion in the processing and manufacturing sector in the first half.

While previously an IP development laggard, Long An has received increased interest, with 16 operating IPs supplying approximately 3,000 ha of leasable land. In the first half it received approximately $350 million in registered FDI, the highest among Mekong Delta provinces.

Hanoi and Hai Phong are bright spots in the north. With international seaports, Hai Phong has been a pioneer in developing IPs in the northern region. Nomura and Nam Cau Kien are typical successful IPs with occupancy rates from 90-100 per cent.

However, the average rent at Hai Phong’s IPs is relatively high due to a lack of incentives for IP developers. This dampened the average occupancy rate of the city’s IPs.

Trang Due was the most appealing IP for investors with comprehensive completed infrastructure. In the first half it was the destination of major investments, including LG’s $1.5 billion and SL Electronics’ $425 million manufacturing projects.

Hanoi and neighboring provinces are strongly supported by Noi Bai International Airport, but there are no nearby seaports and air transport is not necessary for some industries. Attractive incentives have been introduced that target higher-value product industries. The results have been clear, with IP occupancy in the region typically exceeding 70 per cent. Though successful, the north could become more competitive through increased investment in highway networks connecting to China and to Hai Phong’s seaports.

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