HO CHI MINH CITY – 19 May 2020 –
In the last two years, the Vietnam industrial property market has become upbeat with a surge in land and factory leasing inquiries from both existing and new players, and industrial developers are actively looking for investment opportunities. Vietnam is facing its greatest opportunity to become a new manufacturing hub of the world. Manufacturing will continue to shift out of China due to rising costs, trade conflict with the U.S. and manufacturers’ strategy of reducing dependence on a single market, especially after COVID-19.
Rents and occupancy of industrial parks in major manufacturing cities and provinces have escalated amid limited industrial land supply. However, there are concerns about Vietnam’s capability to absorb this new wave of manufacturing relocation when numerous challenges remain, such as transshipment risk, retaliation risk due to trade imbalances, infrastructure capacity constraints and lack of an original equipment manufacturer ecosystem.
CBRE Vietnam today released “Vietnam Industrial Market: Time for a critical makeover”, a special report identifying potential challenges and threats; and assessing investment opportunities in the context of manufacturing relocation, U.S.-China trade instability, and the impact of the COVID-19 pandemic. It is time for a critical makeover of Vietnam’s industrial property market to take advantage of the ongoing global supply chain relocation. Comprehensive supports from central government in terms of incentives, risk management and public investment in infrastructure as well as developer’s agility to meet the variety of demand from manufacturers are all necessary.
Industrial land for lease remains the most common and keenly sought-after format in Vietnam. Growth of industrial land supply in major provinces and cities has slowed in recent years, leading to surging rents in industrial parks. Recently, developers have been constructing ready-built factories and warehouses to maximise efficiency of land usage and cater to the full spectrum of demand. The cost and time spent on building a standard new factory from scratch in an unfamiliar market is far higher than that incurred when purchasing a completed property that is already integrated with supportive facilities and key infrastructure.
Commented on the outlook of Vietnam industrial property market, according to Ms. Thanh Pham, Associate Director of Research and Consulting Services, CBRE Vietnam: ”Steps to ease trade tension with the U.S. and policies to ward off potential tariffs are likely to weaken demand from Mainland China and Hong Kong in the short term. However, FTAs will provide a more sustainable demand driver. Surging demand from foreign manufacturers seeking to relocate to Vietnam – and a desire to commence operations as soon as possible – are driving demand for ready-built industrial properties. Hence, the development of ready-built factory space will continue to gather momentum.”
In long term, Ms Dung Duong, Senior director of of CBRE, notes that there will be significant growth of industrial land supply in tier II provinces/cities and remote areas of tier I provinces/cities. Despite competitive rents and low occupancy, demand in tier II regions will not gain significant traction, mainly due to poor infrastructure. New large industrial land supply and the addition of new stock in emerging locations will curtail rapid rental growth. Occupancy rates will increase rapidly in industrial parks adjacent or with good accessibility to major port complexes.