The industrial real estate market has picked up pace in 2016 as foreign investment continues to pour in Vietnam.

In the first half of 2016, six newly operational industrial zones (IZs) supplied approximately 700 hectares of leasable area, bringing the total to 218 IZs with an area of 59,700ha, and a leasable area of approximately 41,000ha, according to Savills Vietnam.

Neil MacGregor, managing director of Savills Vietnam, said that IZs are performing well with very high take-up rates. The total leased area in the first half of 2016 was 28,500ha, increasing 5% since the end of 2015.

Despite supply growth, occupancy increased to 70% due to the new wave of foreign direct investment (FDI) inflows.

He added that the FDI figure is different from the previous cycle as FDI capital is quickly disbursed. In the last cycle, many projects were registered but money did not enter Vietnam.

In addition, the manufacturing sector is very strong in Vietnam due to low-cost labor. The country also moved up the value chain to develop electronic and hi-tech products electronic and hi-tech products by welcoming Canon, Intel, Panasonic, and Samsung.

Because of the sharply increased demand for industrial space, Savills Vietnam has received many requests from foreign investors who want to find good industrial land for their factories. These foreign manufacturers need to find land that suits their purpose, like close proximity to international ports and airports, as well as a convenient location to tap into low-cost or skilled labor.

Thus, the firm intends to open a new service to meet the increasing demand.

MacGregor also highlighted that some industrial developers are now willing to take on some risks by building warehouses and factories for lease.

Most recently, Japan’s Daiwa House Industry plans to increase the size of its rental factories in Long Duc IZ in the southern province of Long An, almost fourfold by March 2019-aiming to capture the demand from small-to medium-sized businesses looking to enter Vietnam, as reported by Nikkei Asia Review.

The Japanese homebuilder has a 40% stake in Long Duc IZ. Currently, it manages 7,000 square meters of the rental factories. By fiscal year 2018, the company plans to construct six more high-rise buildings, expanding floor space to 26,000sq.m with projected capital of around 2 billion yen (US$19.7 million).

Previously, IZ development in Long An was stagnant. However, the province has increased interest, with 16 operating IZs now supplying approximately 3,000ha of leasable space. In the first six months of 2016, Long An received approximately US$350 million in registered FDI, the highest among the Mekong Delta provinces. Nevertheless, as rents are relatively high, the average IZ occupancy in Long An is still low, at less than 60%.

According to a recent report by Savills Vietnam, Binh Duong and Dong Nai have consolidated their positions as industrial centers of southern Vietnam, with each province attracting approximately US$1 billion to the processing and manufacturing sectors in the first half of 2016.

Meanwhile, IZs in Ho Chi Minh City have the most convenient locations and therefore, the highest rents amongst the southern provinces. Conversely, as a result of higher labor costs, newly developed IZs are pressed to increase occupancy.

VIR