High land rental forces industrial producers to move out of first cities

According to director of CBRE's office and industrial and logistics services Le Trong Hieu, the occupancy rate has reached 91 per cent and the rental price is about from $100 to $160 per square metres, excluding management fees and taxes, in traditional locations of industrial real estate such as Hanoi and Haiphong.

High occupancy rate means there is not much land left at traditional locations for expansion and in case of expansion, the rental price will be high and unattractive.

But if the company move out of Tier-1 cities/province and to Bac Giang, Nam Dinh, Thai Binh or Quang Ninh, the rent and distance are still within acceptable levels, Hieu said at a CBRE event last week.

Large proportion of industrial property supply, both land and ready-built factory, located in major southern/northern cities and provinces (classified as Tier-1 area) with surging demand support market performance increasing rapidly.

Expansion of supply has been led by completion of critical infrastructure projects, especially expressway network and ports.

More competitive land cost as well as lower occupancy rate are making emerging industrial areas in surrounding provinces (classified as Tier-2 area) become more attractive to investors and developers.

Looking forward, there will be increasing number of industrial development and investment in Tier-2 provinces. Most of the large land bank in these areas are agricultural land, which requires conversion of land use, so developers and investors are recommended to cooperate with local enterprises to smoothen the land acquisition and legal process.

“Vietnam industrial real estate market” report published by CBRE said that 2019 is another record year for industrial and logistics real estate in Vietnam when foreign direct investment (FDI) into manufacturing remain positive. This trend is not a surprise when cost of production in China continues to rise, expediting relocation process to alternative locations in Southeast Asia, including Vietnam.

In fact, recent surge of demand for setting up production plants in Vietnam has made the country’s industrial property market, which is still dominated by raw land supply, become more vibrant than ever.

Industrial parks in major cities and provinces has been rapidly occupied in the context of surging demand. The average occupancy rates of industrial parks in key Northern and Southern major cities/provinces were over 92 per cent and 80 per cent respectively the end of 2019.

When there is limited vacant land, developers of existing industrial parks tend to switch to ready-built factory, which is more time and cost efficient to tenants who prefer speedy setup.

Over the last two years, a significant growth of ready-built factory supply was observed in major industrial zones of Vietnam. As of 2019, Southern region of Vietnam (including Ho Chi Minh City, Binh Duong, Dong Nai and Long An) welcomed about 380,500 sqm of ready-built factory, up by 18.9% y-o-y.

Meanwhile, the new supply in 2019 of Northern region (including Hanoi, Haiphong, Bac Ninh, Hai Duong and Hung Yen) was 321,420 sqm, up by 25.2 per cent year on year.

In general, emergence of supporting industry hubs has been widely observed in Vietnam. Either concentration in a specialized industrial park or dispersal within 40-km radius from main assembling factories, industrial developers are in good time to build up ready-built factory model focusing on formation of supporting industries along with application of technology in property management.

Leading developers in ready-built factory sector such as BW Industrial, KTG Industrial, An Phat Holdings has been already catching chance to welcome a new wave of components manufacturers and suppliers following the relocation trend in recent years.

In fact, rapid-occupied leasing area of ready-built factory is a strong basis to believe that the outlook of this type of industrial property is very positive.