Growing demand for production, logistics spaces

06:15 | 21/09/2020 Economy

(VEN) - The effective control of the Covid-19 pandemic and the effect of the EU-Vietnam Free Trade Agreement have bolstered global industrial investor confidence in Vietnam, turning the country into an ideal destination for production and logistics services.

growing demand for production logistics spaces

Vietnam’s industrial real estate market has become busy

Meeting infrastructure needs

According to experts, manufacturing enterprises are still leaving China due to the impact of Covid-19, as well as trade conflicts with the US and manufacturers’ strategies to minimize reliance on one market. This gives Vietnam an opportunity to become a new global production hub and an essential foundation for strong development of logistics services.

As of June 2020, the country had 336 industrial zones covering a total area of about 97,800ha, of which 261 are operational, while 75 are in the process of site clearance and construction. The occupancy rate reached 76 percent at operating industrial zones.

In the second quarter of the year, Vietnam’s southern region registered total leasable land area of 25,045ha, according to a recently released report by the JLL Vietnam real estate developer. Land shortage has become more pronounced as existing industrial zones in the region are gradually being filled up and some of the remaining industrial real estate is not available for leasing due to incomplete compensation payments related to site clearance.

Demand continuing to outpace supply underlines the need for further development in key industrial provinces. Occupancy rates have grown significantly since 2018 in key areas, such as Binh Duong, Dong Nai and Long An in the south, and Bac Ninh, Hung Yen and Hai Phong in the north.

Northern provinces such as Vinh Phuc, Hung Yen, Hai Phong and Hai Duong are expected to become the focus of investment, while southern provinces like Long An and Ba Ria-Vung Tau with convenient access to Hiep Phuoc and Cai Mep ports promise development potential.

Matthew Powell, director of Savills Hanoi, said Vietnam’s industrial real estate market is hampered by limited land supply, forcing developers to make greater efforts to meet market demand. Special attention should be paid to the development of properties close to main routes, ports, and airports.

New projects are increasingly vital to accommodate high-value manufacturing investments. Dong Nai Province is planning to add eight new industrial zones. Accordingly, Long Thanh District will build four additional industrial zones. Phuoc Binh Commune will have two more industrial zones covering 900ha, with total leasable area of around 500ha, while Tan Hiep and Binh An will have one more zone in each commune.

Growing real estate demand

Troy Griffiths, deputy general director of Savills Vietnam, said the pursuit by many manufacturers of the China+1 strategy in order to minimize risks and diversify manufacturing locations would generate greater demand for industrial space in Vietnam.

Effective and rapid pandemic response, robust middle-class growth, an increasingly stable business environment, investment in infrastructure, corporate income tax incentives and free trade agreements are key factors contributing to post-pandemic opportunities. The current situation is expected to accelerate relocations of multinational manufacturers out of China. Recent announcements by major blue chips, such as Apple, Pegatron and Foxconn, indicate a higher proportion of production shifting to Vietnam.

The Japanese government recently issued a US$2.2 billion stimulus package, with the aim of underwriting Japanese manufacturing relocations out of China. So far, 15 Japanese companies, including Meiko Electronics, Nikkiso, Fujikin and Yamauchi have registered to move production to Vietnam. According to the Japan External Trade Organization (JETRO), six of them are large companies, while the remaining are small and medium-sized enterprises, mainly producing medical equipment, semiconductors, phone components and air conditioners.

Foreign investment capital has been increasing. However, the country must be increasingly project-selective to move successfully up the value chain, while improving competitiveness to ensure sustainable growth. This will require continued investment in infrastructure and intermodal transport links; higher education standards; a national skills development plan to increase skilled labor supply; and increased focus on attracting high-tech and smart manufacturing sectors.

Ngoc Thao