Growing foreign direct investment (FDI) and a move up the value chain mean Vietnam’s industrial real estate sector has a bright future, according to real estate services provider Savills Vietnam.

A bird's eye view of the industrial park VSIP-I located in Binh Duong Province. According to Savills Vietnam, the local industrial real estate sector is forecast to boast a bright future

“This is very fertile ground,” said Troy Griffiths, Savills deputy managing director for Vietnam. “We see a lot of FDI in manufacturing from Japan, South Korea, Singapore and Thailand.”

Vietnam attracted FDI flows of US$35.6 billion last year, up a hefty 44.4% from the previous year, with Japan contributing the largest, at US$9.11 billion.

FDI flows in the manufacturing and processing industry made up a whopping 44.2% of the total. Asian manufacturers want to take advantage of a skilled, youthful workforce and wages, which are less than half the level of China for manufacturing staff.

Further, Vietnamese workers are cheaper than their counterparts in Malaysia, Indonesia, the Philippines and Thailand.

“The Vietnamese government wants to move beyond a low-wage economy and is targeting growth in high-tech manufacturing, renewable energy and smart city projects,” Griffiths added.

The industrial investment market is in its early stages. In a landmark deal earlier this year, the Vietnam-Singapore Industrial Park (VSIP) – a Vietnam and Singapore joint venture – saw a sale-and-leaseback transaction that reflected a yield of 10.7%.

Griffiths said, “The capital markets are very tight and there is not a lot of liquidity as the stock is tightly held, but the VSIP deal is an important one to demonstrate what can potentially be done and the returns. Industrial yields above 10% compare favorably with 5-6% for office deals.”

Foreign investors in the manufacturing sector currently hold their assets on the balance sheet and Griffiths believes this will offer an opportunity to real estate investors as the market matures.

Meanwhile, the logistics sector is also set for growth, due to rising exports, growing domestic consumption and a lack of modern facilities. “The government has invested heavily in infrastructure, though more is needed,” remarked Griffiths.

International third-party logistics companies are becoming more active in the Southeast Asian nation and will drive demand for larger modern facilities.

“The rise of ecommerce means that ‘last mile’ fulfillment has significant potential here, and demand will increase for well-located warehouses on central business district boundaries and near major city arterial routes,” said John Campbell, the senior consultant for industrial services at Savills Vietnam.

An early foreign private-equity mover in the sector is Warburg Pincus, which has announced a partnership with the Vietnamese State-owned builder Becamex IDC to create the largest logistics and industrial real estate developer in the country.

Warburg Pincus will invest US$200 million in BW Industrial Development JSC, which will develop modern logistics and industrial properties across Vietnam.

“With the transformative shift of the manufacturing base from markets like China to Vietnam as well as with the rapid rise of domestic consumption, the logistics and industrial real estate market in Vietnam is at an inflection point for outsized growth,” said Jeffrey Perlman, managing director and head of Southeast Asia of Warburg Pincus, at the joint venture’s launch in February.

SGT