Industrial property: Preparation for  next phase of growth?

The leased areas in Vietnam remained high at 700ha (-12.5% yoy) in 5M21. The demand has continued to outpace supply; thus occupancy rate rose 1.6% (compared to end-2020) to 71.8%. “We believe industrial land demand will continue to surge in 2H21-FY22F, fueled by strong FDI inflows and robust manufacturing expansion, especially the attendance of Foxconn and OPPO, which will help attract many of their vendors/sub-contractor   as well as open opportunities for   local support industry”, VNDirect said.

According to the Ministry of Industry and Trade, the export value subject to FTA tariff incentives in 2020 reached US$52.76bn (10.9% yoy). Besides, as guided by EVFTA, Vietnam issued 64,796 EUR C/O worth US$2.5bn (18% yoy) in 3M21. Vietnam’s total export value to the EU by 2030 is expected to jump 44.4%. “The EVFTA, together with other FTAs, will motivate manufacturing investment companies to come to Vietnam, maintaining strong FDI inflows into the Southeast Asian nation in the coming years”, VNDirect forecasted.

Although Vietnam’s industrial land price rose sharply since 2019, the country still offers an average price of US$108/sq m/lease term in 1Q21, the second-lowest price in the region after Myanmar. In Vietnam, wages in manufacturing (on average of workers and engineers) are much lower than that in China and Malaysia. Meanwhile, only Indonesia has better electricity prices than Vietnam for   business.

Besides the low operation costs, Vietnam cut its Corporate Income Tax (CIT) to a 20% flat rate in 2016, from 22% previously, for   all domestic and foreign companies to bolster its attractiveness as a manufacturing hub. Moreover, companies in industrial zones also enjoy many incentives, such as tax exemption/reduction and visa exemption. Common tax incentives for   companies in industrial parks include tax exemption for   two to four years, tax reduction for   the next three to 15 years and import duty exemption.

VNDirect said, the existing businesses are significantly expanding their manufacturing capacity, driven by Vietnam’s strong industrial fundamentals. According to JETRO, 47% of Japanese businesses with existing manufacturing chains in Vietnam plan to expand their capacity in the next 1-2 years. LG Electronics, Intel, Mitsubishi Motors, and Ford also announced plans for   expansion in Vietnam. Besides, many Vietnam support industry companies take advantage of FDI acceleration plans to enhance their capacity such as O.N Vina, a vendor   of Samsung.

As demand continues to outpace supply, Vietnam speeds up increasing supply to fulfill demand. In 5M21, Vietnam established 25 new industrial parks (IPs), added 7,300ha industrial land area, the highest increase in the land area since 2015. As of May 2021, Vietnam has 394 IPs established, with a total industrial land area of 80,900ha (9.9% vs. end-20). Of which, 286 IPs with 57,300ha industrial land area are in operation, 108 IPs with 23,600ha are under construction, ensuring future supply.

According to JLL, land rental prices in key industrial areas remained strong in 1Q21, with an average increase of 8.2% yoy to US$111/sq m/lease term in Southern provinces and 8.1% yoy to US$107/sq m/lease term in Northern provinces. Hung Yen and Bac Ninh provinces continued to record an impressive increase of 13.1% yoy and 7.8% yoy, respectively. “Given its higher demand, we project leasing prices to continue its upward trajectory in 2H21-FY22F, especially for   IPs in urban areas, given the shortage supply”, VNDirect stressed.

Industrial land supply in the South is expected to rise further in 2021-22F with 5,000ha in total to capture the growing demand in the region. Infrastructure development has been stepping up with imminent projects such as 11 sub-projects in the eastern section of the North-South Expressway, Trung Luong-My Thuan expressway, and phase one of the Long Thanh international airport project.

In early 2021, Long An proposed to develop a 32,000ha super economic zone (EZ), one of the largest EZs in Southern Vietnam. Together with the acceleration of e-commerce and the upcoming attendance of Alibaba, GS Energy will add more excitement for   this province in 2H21-FY22F. These factors make Huu Thanh IP (c.500ha) of IDC more appealing and could capture the growing demand, in VNDirect’s view.

VNDirect believed, Ba Ria- Vung Tau IPs will be in the spotlight for   infrastructure development with Cai Mep - Thi Vai port and Long Thanh International Airport. Chau Duc IP (1,500ha) of SZC stands out with competitive land prices and sizeable leasable area on occupancy rate only 40-45% as at 1Q21.

Ba Ria- Vung Tau IPs will be expected in the spotlight for   infrastructure development with Cai Mep - Thi Vai port and Long Thanh International Airport. 

Bac Giang is also emerging as one of the major   industrial hubs in Northern Vietnam thanks to its favorable location, improving logistics infrastructure, and active efforts by the local government by issuing tax and land incentives. KBC stands out by contributing the most in Bac Giang’s FDI in 6M21 with Foxconn, Fukang, Solar JV investing in Quang Chau IP of KBC. Both Bac Giang and KBC are speeding up site clearance and licensing procedures to attract more of their vendors/sub-contractors. Besides, Hung Yen and Hai Duong are on VNDirect’s watchlist when some local developers such as KBC, HPG are proceeding to expand their land bank in these provinces.

“We see an impressive 1Q21 net profit growth in KBC and SZC thanks to a significant increase in leased land. Meanwhile, a surge in SIP and VGC's net profit mostly came from the decrease in financial expense and cost of goods sold. The revenue growth in GVR and PHR was mostly from rubber activities which enjoyed the rise in natural rubber prices. However, PHR posted a drop of 59% yoy in 1Q21 net profit, a normalization after an off income of VND150bn from Nam Tan Uyen 2 IP land compensation in 1Q20”, VNDirect said.