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Investing in Industrial Zones in Vietnam
The industrial real estate market in Vietnam, including industrial parks, has experienced a dramatic increase in foreign direct investment (FDI). In this article, Vietnam Briefing lays out a panoramic view of the sector and its key growth drivers.
There are 563 industrial parks (IPs) in 61 out of 63 provinces in Vietnam as of 2022. Out of these, 397 IPs have been established, 106 IPs are under construction, and 292 IPs are operational, according to the Vietnamese Real Estate Report 2022. Most of these IP projects are concentrated within three key economic regions: the Southeast region, the Red River Delta region, and the Central Coast region.
With a stable growth rate, an economy driven by FTAs, and well-executed support policies for investment, Vietnam continues to be an attractive destination for real estate investors. With competitive prices and geographical location close to China, the leasing demand for industrial real estate in northern Vietnam is forecasted to experience higher growth than in Vietnam’s south.
That said, Binh Duong, the province next door to Ho Chi Minh City, has witnessed a significant increase in industrial real estate occupancy, with the rate exceeding 95 percent. Other industrial zones in major regions including Dong Nai, Bac Ninh, Bac Giang, Hanoi, and Ho Chi Minh City are also nearly filled.
Consequently, the rental prices for industrial parks are expected to rise. Currently, Ho Chi Minh City is recording an average rental price of US$186 m2 and Hanoi recorded an average rental price of US$142.3 m2 in 2022, according to Cushman & Wakefield Vietnam.
Challenges for investors in the Vietnam industrial parks market
Land rental fees
A scarcity of industrial parks may be on the horizon and this is pushing up prices. No new supply was announced or put into operation in the first quarter of 2023. Furthermore, rental prices for industrial land have increased sharply since the Vietnamese government issued Decree No. 96/2019/ND-CP related to the land price range of specific land types and regions. Accordingly, the land price coefficients for compensation in many provinces have increased this year.
In addition, the Vietnamese government also issued Resolution No. 115/NQ-CP clamping down on the conversion of land used for rice crops into industrial land. Although this regulation aims to restore degraded land, it may limit the supply of industrial parks in 2023.
In general, saturated supply and increasing waves of shifting production in Vietnam are expected to raise the rental industrial price by 8 to 20 percent year-on-year in 2023.
Complicated legal issues
Regulations on approval of investment policy for foreign investors are still complicated although they have been revised many times. For instance, according to Decree No. 82/2018/ND-CP, the construction permit for construction investment projects must get approval from the Ministry of Planning and Investment alongside a number of other ministries and agencies related to the project scope. The plans will then be submitted to the Prime Minister for final approval. After that, the Principal People’s Committee will issue a decision on the establishment of an industrial park. This procedure can be both difficult and time-consuming for foreign investors.
Limited human resources
The shortage of skilled labor supply is a long-term challenge for the industrial real estate market. According to the General Statistics Office Vietnam as of the second quarter of 2023, the proportion of trained workers with degrees and certificates was 26.8 percent, whereas 73.2 percent were low-skilled or unskilled workers.
The Labor Market Report 2022 conducted by Vietnamworks, a leading online recruitment channel in Vietnam, also showed the imbalance between labor supply and demand. Construction, services, technology information, and manufacturing are the main sectors struggling with labor shortages. Metropolises, such as Ho Chi Minh and Hanoi, have experienced a shortage of human resources of 43.02 percent and 48.11 percent, respectively.
Lack of support for workers like accommodation, in-work training, or childcare assistance also makes working in industrial parks less attractive. This imposes a significant challenge for both the Vietnamese government and enterprises in improving labor qualifications and talent retention in these areas.
Trends in Vietnam’s industrial real estate market
FDI in industrial property is growing
The production shift from China to Vietnam is expected to be a growth driver for the industrial property market. In the first half of 2023, the market recorded the expansion of big manufacturers, such as Foxconn and Goertek in industrial parks in Bac Giang and Bac Ninh. Other firms, such as BOE, Quanta, and Samsung, have also planned to invest substantially in factories in Vietnam.
Although rent for industrial land in Vietnam steadily increased, it is still 25 to 40 percent lower than other countries in ASEAN. In addition, Vietnam’s FDI policies have been revised many times to attract more foreign investors. For instance, according to Decree No. 218/2013/ND-CP, foreign investors can be exempt from tax for four years and half the regular corporate tax rate for the next nine years, under certain circumstances. Land rental for investment projects in hi-tech and economic zones may also be exempted per Decree No. 35/2017/NĐ-CP.
Furthermore, CBRE Vietnam has recorded strong demand for Chinese tenants in ready-built warehouses/factories in the first half of 2023, especially in northern Vietnam. In particular, new leases in the electronics sector have been common in the past year.
More investment in satellite areas
The industrial real estate market has seen a series of new industrial parks developed or expanded in provinces adjacent to Ho Chi Minh City and Hanoi. Lego, a leading company in toy manufacturing, has injected over US$1.3 billion into the VSIP III industrial park in Binh Duong. Another prominent example is the joint venture agreement between Australian logistics venture LOGOS and Canadian investment fund Manulife to build an industrial park in Dong Nai.
With reasonable land prices, increasing supply, and a strategic location, industrial parks in satellite areas will become increasingly vibrant and competitive. The appearance of large real estate investors, such as Nam Long Investment Corporation, Vingroup, or Novaland\, has proven the long-term potential of these ‘neighborhood areas’.
M&A are becoming popular
According to the Deputy General Director of EY Vietnam, the value of the M&A market reached US$3.2 billion, of which 43 percent is from the real estate and construction sector. Industrial property is the most attractive segment, with 16 successful trades out of 24 sales in the real estate and construction sectors.
One of the notable transactions in the first half of 2023 in Vietnam was ESR Group’s acquisition of BW Industrial Development. The total value of the acquisition was US$450 million, which stands out as the largest M&A deal in the real estate market.
The M&A real estate market is expected to soar from mid-2023 onwards. This is an opportunity for foreign investors to enter the Vietnamese real estate market through the acquisition of projects from domestic enterprises.
Eco-industrial parks are in demand
According to CBRE Vietnam, sustainable development and green growth are emerging trends in industrial parks in Vietnam. With a commitment to reaching net zero emissions by 2050, the Vietnamese government has developed a number of policies to achieve this goal. According to Decree No. 35/2022/ND-CP, at least 25 percent of the total area of industrial land should be set aside for tree planting, transportation, and social infrastructure, for example.
Key takeaways
Vietnam’s industrial real estate market promises high growth in the near future, however, industrial real estate developers need to clearly understand the market and Vietnam’s legal regulations.
For more information, contact the business advisory experts at Dezan Shira and Associates.
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Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEAN, China, India, Indonesia, Russia & the Silk Road. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.
Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at vietnam@dezshira.com or visit us at www.dezshira.com
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