Rising land rents make manufacturers’ life miserable

Constant rises in land rents at industrial parks (IPs) lessen the chance for Vietnamese enterprises to build new factories or relocate their production facilities

Rising land rents make manufacturers’ life miserable
Vietnam has attracted greater FDI inflows into manufacturing, leading to the burgeoning demand for workshops and industrial land, which may further push up IP rents

More than half a year has passed since a food processing company began to look for a plot of land in Binh Duong and Dong Nai to develop a factory so as to move its production facilities away from HCMC. 

However, it has not found a suitable location while industrial land prices in these two provinces keeps going up, says the company’s boss.

Two years ago, Long An was the locality chosen by this company for their relocation plan because this province borders HCMC.

Unfortunately, the land rates for industrial facilities in Long An increased earlier than other localities did because of its convenient location, which helps shorten the time of transporting goods to HCMC and the Mekong Delta—the market the food processing company is targeting.

“Industrial land rents in these localities averaging US$90-110 per square meter, or up to US$130 in some cases, are too high whereas our capacity and production scale remain modest,” says the company’s CEO.

“Such exorbitant rates also make it very difficult for other small and medium enterprises. I’m now considering another option, which is to rent a factory instead.”

Many other small and medium-sized companies have faced with similar dilemma. Tran Viet Tien, member of the Standing Committee of the Handicraft and Wood Industry Association of HCMC (HAWA), says many HAWA members are very worried as industrial land rents had been escalating with no end in sight.

The wood industry which makes furniture and handicrafts requires spacious premises, so the surging industrial land rents make it really hard for them to relocate their production facilities or expand their scale, Tien says.

Reasons behind the soaring rents

IP infrastructure developers have forecast IP land rents will further jump as vacant lots are more scanty, especially in the context the wave of foreign investment in Vietnam is rising.

In Binh Duong, areas within a radius of 40-60 kilometers away from HCMC have virtually no more land for IP development.

In Dong Nai, the occupancy rate at local IPs by the middle of this year has grown to over 75%. In Long An, where 16 IPs are operating, the occupancy rate is higher than 80%.

The price of industrial land for rent in this locality is up to US$100-140 per square meter depending on location.

Studies done by real estate consulting companies also point to a constant rise in industrial land rents in recent years.

As per a survey by Jones Lang LaSalle Vietnam (JLL), land rents in HCMC by the end of June 2018 had surged to US$150 a square meter for each cycle, versus US$143 in the fourth quarter of 2017.

This June, land rents at IPs in the city kept up the momentum, hitting US$162 per square meter.

For the whole southern market, industrial land rents escalated from US$72 per square meter in the second quarter of 2018 to US$80 in the fourth quarter, and reached a new peak of US$95 per square meter for the cycle until June 2019.

 

This is considered a very high rent increase margin for the industrial real estate market.

Long An may arguably be a new option besides the two traditional destinations for industrial investment, namely Binh Duong and Dong Nai, recording the highest rent growth rate in the last quarter.

Currently, the average IP land rent in Long An is over US$100 per square meter for each cycle, only behind HCMC in the southern market.

At present, the average occupancy rate at IPs and export processing zones in the south is as high as 81%, with HCMC, Binh Duong and Dong Nai as the strongest magnets regardless of the surging rents.

The monthly rent of ready-built factories is US$3.5-5 per square meter, for a minimum term of 3-5 years.

This rate is slightly higher than the updates of the previous two quarters, thanks to the growing demand for this category of land.

By the end of Q2, the total area of IP land for rent in the southern region had reached 25,060 hectares, 2.5 times greater than in the north.

Since industrial land in the southern provinces now has a high occupancy rate, this market tends to provide new supply.

As the first destinations for industrial development in Vietnam, Binh Duong and Dong Nai are still the most sought-after by fresh manufacturers due to solid foundation for production development that comprises a synchronous system of infrastructure and administrative procedures well established to assist business operations.

JLL Vietnam and realty consulting firms believe, as the U.S.-China trade tensions are likely to keep escalating, the shift of production facilities from China to Southeast Asia will further boost the demand for industrial estate.

In addition, Vietnam’s efforts to expand the free trade area, with the EU-Vietnam Free Trade Agreement (EVFTA) just signed in late June, are expected to enhance the appeal of her industrial market and push up the price of industrial properties.

Notably, according to experts, Vietnam has become a destination for many international investors whose committed capital remains at a high level, especially in the manufacturing industry.

In the first six months of this year, foreign direct investment (FDI) pledged for the processing and manufacturing sectors picked up again, from 46.7% in 2018 to over 70% of the total registered investment capital.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which came into effect earlier this year, has also helped Vietnam attract a greater FDI inflow into manufacturing, leading to the burgeoning demand for workshops and industrial land, which may further push up the rents. SGT

Le Hoang

Preschools in HCM City's industrial parks need more support

Preschools in HCM City's industrial parks need more support

Preschool education in export processing zones and industrial parks in HCM City must receive more support to meet workers' childcare needs, education officials said.  

Requirements versus benefits in eco-industrial parks

Requirements versus benefits in eco-industrial parks

Tran Duy Dong, director general of the Department for Local and Regional Economy under the Ministry of Planning and Investment, speaks to Industry and Trade newspaper about the development of eco-industrial parks in Vietnam.

 
 

Other News

.
COVID-19 threatens property brokers with unemployment
COVID-19 threatens property brokers with unemployment
BUSINESSicon  22/03/2020 

The COVID-19 pandemic has become a new challenge for property brokers who have been facing many since last year due to the low supply in the market.

Commercial centres deserted in Hanoi amidst COVID-19 fears
Commercial centres deserted in Hanoi amidst COVID-19 fears
PHOTOSicon  22/03/2020 

With fears surrounding the potential spread of COVID-19 gripping Hanoi, the majority of commercial centres located in the capital have been increasingly quiet in recent days with local people cautious about going outside.

VN shrimp segment above water
VN shrimp segment above water
FEATUREicon  22/03/2020 

Despite the complexities of COVID-19, shrimp exporters and processors still see a bright future ahead thanks to new markets, and boosting exports to traditional markets which have cut imports from China.

Vietnam makes it into top 5 economic freedom gainers in Asia-Pacific region
Vietnam makes it into top 5 economic freedom gainers in Asia-Pacific region
BUSINESSicon  22/03/2020 

With the strides in opening its economy, Vietnam has improved its ranking to 105th on the 2020 Index of Economic Freedom by The Heritage Foundation.

Firms to adhere to anti-dumping law
Firms to adhere to anti-dumping law
BUSINESSicon  22/03/2020 

Pham Duy Khuong, managing director of ASL Law, talked about some important contents related to anti-dumping laws that foreign companies should pay attention to when digging into the Vietnamese market.

VN firms resolute in business goals despite COVID-19 impacts
VN firms resolute in business goals despite COVID-19 impacts
BUSINESSicon  22/03/2020 

Many companies have performed well in the first two months of the year despite the COVID-19 outbreak and insist on keeping business targets unchanged.

VN rail sector finding way back on track
VN rail sector finding way back on track
BUSINESSicon  22/03/2020 

Despite strong efforts, state-owned Vietnam Railways may face a downturn this year due to the COVID-19 pandemic and challenges from legal barriers. 

State capital commission to work with struggling mega-projects
State capital commission to work with struggling mega-projects
BUSINESSicon  21/03/2020 

The Commission for the Management of State Capital at Enterprises (CMSC) must continue to support managers of 12 struggling mega-projects under the Ministry of Trade and Industry with the State’s capital investment.

Real estate firms calls for Government support
Real estate firms calls for Government support
BUSINESSicon  21/03/2020 

The HCMC Real Estate Association has urged the Government to add the property industry to the list of those affected by the COVID-19 outbreak and are eligible for a five-month postponement of VAT and land-use fee payments.

EU, US yet to limit garment imports from Vietnam due to COVID-19
EU, US yet to limit garment imports from Vietnam due to COVID-19
BUSINESSicon  22/03/2020 

Minister of Industry and Trade Tran Tuan Anh said on March 20 that EU and US authorities have yet to limit the import of garment products from Vietnam.

Textile and footwear firms go local to survive pandemic
Textile and footwear firms go local to survive pandemic
BUSINESSicon  21/03/2020 

While most textile and footwear enterprises in Vietnam struggled to find alternative sources of raw materials to maintain production, some with local sources have survived during the COVID-19 pandemic.

US has no plan to suspend import of Vietnamese garment-textiles: ambassador
US has no plan to suspend import of Vietnamese garment-textiles: ambassador
BUSINESSicon  21/03/2020 

The US Government has no plan to suspend the import of Vietnamese garments-textiles, said Vietnamese Ambassador to the US Ha Kim Ngoc.

Covid-19 crisis can offer opportunity for Vietnam to expand role in global supply chain
Covid-19 crisis can offer opportunity for Vietnam to expand role in global supply chain
BUSINESSicon  22/03/2020 

The difficulties in the global pandemic are opportunities for Vietnam to expand its role in the global supply chain.

Vietnam’s fish, shrimp exports no longer can enjoy preferences from the US
Vietnam’s fish, shrimp exports no longer can enjoy preferences from the US
BUSINESSicon  23/03/2020 

Vietnam’s seafood industry has received bad news: it can no longer enjoy the preferences offered by the US to developing countries.

BUSINESS NEWS HEADLINES MARCH 21
BUSINESS NEWS HEADLINES MARCH 21
BUSINESSicon  21/03/2020 

State Bank approves restructuring plan for Saigon Commercial Bank

BUSINESS NEWS HEADLINES MARCH 20
BUSINESS NEWS HEADLINES MARCH 20
BUSINESSicon  20/03/2020 

Garment export value hits US$5.3 billion during Jan-Feb

EVFTA expected to create great pressure on domestic logistics firms
EVFTA expected to create great pressure on domestic logistics firms
BUSINESSicon  20/03/2020 

The expected execution of the EU-Vietnam Free Trade Agreement in 2020 will create great pressure on Vietnamese logistics businesses, insiders said.

Ministry cuts, exempts fees of 15 securities services to support stock market
Ministry cuts, exempts fees of 15 securities services to support stock market
BUSINESSicon  20/03/2020 

The Ministry of Finance has cut the fees of nine securities services and exempted fees for six others as from March 19 as part of efforts to support the stock market amid the negative impact of the COVID-19 epidemic.

How are Vietnamese businesses managing during the Covid-19 crisis?
How are Vietnamese businesses managing during the Covid-19 crisis?
BUSINESSicon  20/03/2020 

While tourism, transportation and F&B sectors are suffering heavily from Covid-19, the impact on other business fields has been less severe.

VN digital payment market reshaped because of new rules
VN digital payment market reshaped because of new rules
BUSINESSicon  21/03/2020 

A new payments market will be created with the presence of more players, including commercial banks, fintechs, telcos and foreign investors.

 
 
 
Leave your comment on an article

OR QUICK LOGIN