Vietnam has made major inroads into the global industrial world in recent times. Supported by developments to national infrastructure, the signing of numerous trade pacts, and the fact that higher manufacturing costs in traditional markets such as China have opened doors to major corporations, Vietnam’s transition from a peripheral to mainstream industrial country has been swift and successful, according to CBRE Vietnam.

Global trade tensions are said to be a catalyst, and with China’s ongoing move towards becoming a higher-income country and Vietnam deepening its ties in global supply chains, Vietnam can sustain its new standing as Asia’s rising manufacturing economy.

But it can’t afford to rest on its laurels, especially as many countries will look to capitalize from high labour costs in China and geopolitical tensions.

Landing on its feet

The backbone for any emerging industrial economy is available and functional real estate. It’s no different in Vietnam, and the country will rely heavily on favorable fundamentals in its property space, CBRE noted.

The scales are tipping in Vietnam’s favour in 2019. According to CBRE Research, for example, industrial land costs in a sample of major cities across China stand at $180 per sq m while those in Vietnam are typically in the $100-140 per sq m range. This is clearly attractive for prospective manufacturers.

Furthermore, the average land rental is increasing 5-8 per cent in Vietnam. Reflecting this more modest price rise, rentals in Vietnam’s industrial parks, especially those in strategic locations connected to and in close proximity to key infrastructure, are surging.

For example, the average ready built factory (RBF) and warehouse rental in Ho Chi Minh City is around $4.1 per sq m per month. At the top of the range, the highest achievable RBF rental in southern Vietnam currently stands at $8 per sq m per month, at a new RBF campus dedicated to Japanese clients in the city.

In the north of the country, the average RBF rental ranges from $3.5-$4 per sq m per month. The highest achievable rent in northern Vietnam ranges from $5.5-$6 per sq m per month for options in established industrial parks in Hanoi, Bac Ninh, Hai Duong, and Hai Phong.

Ahead of the curve

Going forward, CBRE projects that industrial parks will continue to thrive. Occupancy rates of between 70 and 90 per cent will remain standard, as infrastructure connectivity will play a larger role in occupiers’ location decisions.

In a recent CBRE survey, the number of factories in Vietnam on Apple’s supplier list increased from 16 in 2015 to 22 in 2018, all of which are FDI companies.

Following the same trend, Samsung Electronics announced last year that it would cease operations at its mobile phone production plant in China.

Twenty-nine Vietnamese companies are acting as Samsung’s Tier-1 suppliers. The localization rate jumped from 34 per cent of total product value in 2014 to 57 per cent in 2017.

Clearly, this business speaks volumes about Vietnam’s place and reputation as a leading location for industrial production.

The good times are expected to continue with the right governmental support, business incentives, and corporate interest. For the remainder of 2019 and all of 2020, we see increases in industrial property supply across Vietnam to benefit from this production shift from China.

New supply continues to come online in both the north and south of the country.

The diversification of new industrial parks, manufacturing facilities, and infrastructure shows that Vietnam will enter the next decade in a prime position and further establish itself as one of the major beneficiaries of a rebalancing China and evolving global supply chain. VN Economic Times