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CBRE Launches its Report on the Impacts of Growth in the Vietnamese Automobile Sector on the Industrial Real Estate Market
 

In December 2018, CBRE Vietnam published an in-depth report and commented on the positive impacts that the growth of the Vietnamese automobile sector has on the industrial real estate market. In general, the Southeast Asian automobile industry has achieved substantial growth thanks to dedicated support along with the domestic protectionist policies of its respective governments. In Vietnam, recent rapid changes in regulations, policies, and international trade agreements have had a significant impact on the market. Accordingly, positive signals can be expected from these changes not only for industry but also for the consumer market. From the real estate perspective, the most important aspect for market shift and macroeconomic conditions is the increased demand and expansion of industrial production. In fact, there have been major industrial and commercial lease deals related to the automobile sector over the past three years with anticipated demand for lease extensions in future periods. High occupancy and rising rental rates are challenges for expanding production. However, this could also be an opportunity for real estate developers to note the increasing demand for production expansion amid the current limited supply.

 

Since the beginning of 2017, the Vietnamese automobile market has witnessed a series of significant events, which are expected to reshape the entire industry. The most important events were the promulgation of Decree 116/2017/NĐ-CP (Decree 116) and Decree 125/2017/NĐ-CP (Decree 125) in October and November 2017. These policies were designed to support the emerging Vietnamese car manufacturing interests by applying a legal criterion to expand production scale and improve the quality of domestic products.

 

 

 

According to CBRE’s report, while the automobile industry in Vietnam is still underdeveloped in terms of production and manufacturing development in comparison to other ASEAN countries, the accumulation of industrial land banks for the industry is increasing. At the same time, each region in Vietnam has distinct competitive advantages based on the difference in business and production nature as well as land availability.

 

The Southern region accounts for about 43.16% per year of total automobile sales in Vietnam, but the production scale and capability of the Southern area (including HCMC, Dong Nai, Binh Duong and Long An) are much smaller than that of the other regions. Meanwhile, the assembling cluster is mainly distributed in the North with a network of foreign original equipment manufacturers (OEMs) as well as auto part manufacturing facilities. The establishment of VinFast factories has strengthened the automobile assembling and manufacturing platforms in the North. Accordingly, with a strong base and rich history of car assembling and auto part production, the demand for large industrial land banks for manufacturing factories is worth considering in the Northern region. The Central region, on the other hand, is the least developed area for the industry. Da Nang city and Quang Nam province are areas where the density of automobile manufacturers is relatively high, especially with the presence of Chu Lai – Truong Hai Automobile Complex, developed by THACO. Chu Lai is a fully integrated automobile complex including factories for assembling, manufacturing and suppliers; warehouses and a dedicated deep-sea port.

 

Over the past three years, many successful industrial land rent transactions have been recorded in the Southern region; and most of them belong to accessory factories with a demand to expand production.

 

 

The Vietnamese automobile industry still has much to do to reach a golden period and compete with regional rivals. The role of policy-makers is considered the most vital, but the industry needs more than that to thrive. A win-win relationship herein can be established for both government and real estate developers. Authorities nurture the domestic industry by implementing protectionist policies; while at the same time creating opportunity for industrial land developers to exploit the expansion in manufacturing as well as business demand. Real estate developers can, on the other hand, offer not only to the government but also to automakers logistic service provider solutions for clustering production and supply activities into specialized automobile manufacturing complexes.

 

 

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