Industrial real estate positioning in Vietnam

The global supply chain is undergoing positive adjustments and reverting to a stable condition after three years of interruption owing to the epidemic. However, the pandemic and geopolitical uncertainties have highlighted the supply chain's fragility and shifted the focus to recovery capabilities. Meanwhile, in the current severe economic environment, cost remains a critical concern for enterprises.

New strategic alliances

According to Savills' views, multinational firms' approaches to the supply chain are changing. This tendency derives not just from their need to adapt to geopolitical conflicts and new economic models, but also from changes in global government strategic policies.

Over the last 20 years, the most notable element has been the rise of globalization, which has spurred worldwide economic growth. However, since many governments prioritize security and trade protection, this tendency has been increasingly curtailed. Governments are also attempting to boost domestic production while safeguarding strategically vital economic sectors. These areas include energy, food and medicines, minerals, and technology, which will be necessary in the future to support high-growth industries such as semiconductors and electric cars.

This is what the International Monetary Fund (IMF) refers to as "geoeconomic fragmentation." The cause is Russia's invasion on Ukraine, which hastened the process of severing the US-China partnership, resulting in two main political and economic spheres of influence throughout the world. This is a condition unseen since the breakup of the Soviet Union.

When industrial policies are implemented to support both domestic and foreign policies related to energy security, new technologies, and achieving Net Zero goals, the "friendshoring" option (shifting production lines to friendly nations) may be one of the important supply chain drivers.

Impacts on real estate market

According to analysts, geopolitical volatility might have an impact on the entrance of overseas capital into the real estate market. This has already begun to occur in several places of the planet.

Chinese investment in the United States, notably commercial real estate, has fallen dramatically since 2016. According to the Rhodium Group, this is mostly owing to Beijing's tight control over money outflows and rising investment hurdles for Chinese firms in the United States.

These worldwide problems will have an influence on commercial real estate demand, particularly in the logistics and manufacturing sectors, in the United States, Europe, and Asia-Pacific.

In the Asia-Pacific area, China continues to be the "world's factory," accounting for over 30% of worldwide output. Despite the schism between the United States and China, as well as Western worries about relations with Russia, China retains a considerable economic edge due to its relatively well-developed infrastructure, skilled labor force, and strong integration into the global supply chain.

According to Mr. Jack Harkness, Savills' Director of Logistics Services and Industrial Real Estate in Asia-Pacific, cost is still a major factor in investment site selections. However, rising labor prices in China mean that this market is no longer as cost-effective as it once was, especially as company repatriation rules and global security concerns take hold.

"Companies with a presence in China may not have to leave the market." However, the establishment of new facilities there may be slowed," the expert warned.

Mr. Harkness also mentioned that many firms with a presence in China are looking to expand rather than replace existing plants. Apple, for example, has stated that it intends to diversify away from China. Siemens also claimed that they are looking into additional Southeast Asian areas.

Opportunities for Vietnam

In this environment, nations such as Vietnam and Indonesia stand to benefit if firms search for low-cost manufacturing centers in Asia, particularly in labor-intensive and low-profit industries. In the future, India also provides significant development potential for commercial real estate investors.

Mr. Harkness went on to say, "This process is being accelerated in industries deemed strategically important for US and European industrial policies." Furthermore, there is suspicion regarding the influence of some Western governments on some Chinese technology businesses, meaning that Chinese companies' progress in these areas will be more constrained in the future."

Commenting on the trend, Mr. John Campbell, Deputy Director of Industrial Services at Savills Vietnam, stated that Vietnam is attracting a large number of foreign investors' interest.

""Specifically, as in previous years, there is a high demand for the electronics industry in the northern region." Savills has seen a wide range of demands in the southern area, including logistics, fast-moving consumer products, medicines, food and drinks. In terms of nations, we have seen a rise in European firms, such as Germany and France, compared to the pre-COVID time. The EU-Vietnam Free Trade Agreements have resulted in this. As Taiwan wishes to invest, Asian investors are also interested in the southern market. Although Taiwan's electronics industry is centered in the north, producers in other industries have high hopes for the southern market, according to Mr. John Campbell", Mr. John Campbell explained.

Mr. John Campbell forecasted that the second half of the year would see growth prospects. Despite forecasts of global economic recession, positive signals are still expected.

"While there has been some sluggishness in signing new lease contracts this year, many foreign companies have considered Vietnam and are still looking for ways to enter the market." The manufacturing industry struggled in the first half of the year, and industrial production fell. However, the situation is progressively improving, and we anticipate that the second half of the year will deliver more encouraging signs for manufacturers, investors, and logistics firms. We anticipate that the economic situation will improve in the second half of this year. "The end of the year will mark a remarkable turnaround in development," said the Savills Vietnam specialist.