5 real estate M&A trends

Mr. Le Xuan Dong, EY Vietnam's Strategic Consulting Director, claimed that real estate M&A activity in Vietnam has declined in both quantity and value during the last three years, as well as in the first half of 2024. In terms of transaction structure, M&A transactions in the real estate industry continue to be substantial, accounting for around 30-40%.

This is because real estate has always been a favored target for M&A investors. Furthermore, the sector faces several legal and financial procedural barriers, making market entry through M&A more efficient than investing in new projects. This sets the market apart from other countries in the region.

Looking deeper into real estate M&A deals, Mr. Dong stated that 2023 was a very difficult year for real estate organizations in terms of financing, legalities, and business concerns. As a result, the number of M&A deals declined by nearly 30% from the previous year.

Mr. Dong also stated that in recent years, industrial and residential real estate have continually sparked substantial investor interest, as seen by the large number of M&A deals in these two sectors.

He believes there are various reasons why these two real estate industries regularly receive a large percentage of M&A transactions. First, Vietnam benefits from a wave of production shifts from neighboring countries to Vietnam in order to take advantage of free trade agreements (FTAs) signed with various countries, with the goal of leveraging tax breaks on exports and a potential domestic market of 100 million people. In recent years, demand for industrial real estate for the development of factories, warehouses, logistics centers, and data centers has increased significantly, and this trend is projected to continue in the coming months.

Second, residential real estate has maintained a significant percentage in recent years, accounting for about 60% by 2023. Despite various challenges, the residential real estate industry in Vietnam remains very promising in the long run.

"Vietnam's young population, high urbanization rate, and rising income levels have created a considerable demand for improved living conditions, particularly in large cities. As a result, there is a huge demand for housing developments, which has sparked substantial investor interest," Mr. Le Xuan Dong noted.

Mr. Dong further mentioned that, while retail real estate deals are rare, they are usually large. This sector also piques the interest of investors, particularly international ones, looking for retail assets in major city centers and mixed-use urban complexes with strong occupancy rates.

Dong also highlighted five major patterns in real estate M&A deals in Vietnam in the first half of 2024, as well as future possibilities.

First, the real estate sector in Vietnam continues to attract significant interest from foreign investors. Investors from the US, Singapore, Japan, and South Korea are highly interested in the Vietnamese real estate market (through both M&A and FDI) due to the stable long-term economic growth potential, the trend of shifting foreign manufacturing bases to Vietnam, a young population structure, and a high urbanization rate.

Second, industrial real estate continues to be a highly regarded segment among investors. Industrial real estate projects near highways, border gates, seaports, river ports, airports, and major provinces and cities such as Hanoi, Hung Yen, Hai Duong, Hai Phong, Bac Ninh, Bac Giang (in the north), Ho Chi Minh City, Binh Duong, Dong Nai, Long An, Ba Ria - Vung Tau, Tay Ninh (in the south) will continue to attract investor interest in the coming years.

Third, the trend of seeking to acquire residential real estate projects or large clean land banks. Investors tend to seek acquisitions of residential real estate projects or large clean land banks in suburban areas or satellite cities near major cities like Hanoi and Ho Chi Minh City to develop mixed-use projects (mixed-use projects) including housing, schools, hospitals, shopping centers, and entertainment areas to provide full amenities for residents and anticipate the wave of urbanization.

Fourth, retail real estate remains an attractive sector for investors. Retail properties in central areas of major cities or within mixed-use urban projects, offering diverse services such as fashion retail, consumer goods, cosmetics, F&B, and entertainment services, often with high occupancy rates, will garner significant investor interest.

Finally, the trend of incorporating sustainable development and ESG factors into real estate M&A transactions. Assets that are operational real estate, such as shopping centers, office buildings, hotels, complying with sustainable development criteria, and obtaining green certifications (such as LEED, BREEAM...) will attract the interest of large institutional investors (such as international real estate investors, foreign pension funds, government investment funds, ...) and are often valued higher, making it easier for investors to access green financing with competitive interest rates to support these acquisitions.