Investment viewpoint: Catalyst for the industrial real estate

Industrial parks rental prices are still surging amid the pandemic.

The spread of the COVID-19 pandemic on a large scale has slowed down the growth figures of FDI into Vietnam. In particular, newly registered FDI capital in 8M21 hit USD19.12 billion (-2.1% YoY) compared to VND8.83 billion (18.6% YoY) in 5M21. With the large demand for leasing industrial parks from foreign investors, the slowdown of FDI registration and disbursement will have short-term impacts on the new lease progress of industrial park enterprises.

Industrial parks rental prices are still surging amid the pandemic. According to Jones Lang Lasalle, the Industrial Parks are available for lease at USD107/m2 (5.9% YoY) in the Northern region, and USD113/m2 (7.1% YoY) in the Southern region. This uptrend may continue because the investors have recognized that the impact of the pandemic will be only in the short term, and Vietnam will still attract FDI in the long term.

FDI could return from 4Q21 and recover strongly in 2022 when Vietnam reopens its economy. KB Securities believes that Vietnam's vaccination progress has improved significantly since July 2021. Up to the end of October, approximately 100 million doses have been distributed nationwide. Production activities in the Southern provinces have been reopened under the new normal. Therefore, this stock company is optimistic that the Southern provinces can partially reopen activities in 4Q, and fully reopen in 2022.

Meanwhile, manufacturers need to diversify their supply chains out of China amid the pandemic. COVID-19 is considered a test on the strength of global supply chains which proved to fail miserably with empty shelves and production delays. Manufacturers have recognized the need to diversify the supply chain more. Gartner's survey revealed 33% of suppliers planning to move part of their factories out of China by 2023.

Vietnam and neighboring countries will replace China as the World's factory thanks to cost-competitive advantages. Vietnam remains an attractive destination for foreign investors thanks to its proximity to China and low labor cost (USD252 per month which is half of China's). Furthermore, the infrastructure in Vietnam's industrial zones has been improving, which will also be an important factor in attracting foreign investors. These will be favorable conditions to help Vietnam attract FDI in the long term.

As of May 2021, the newly approved industrial park area reached 7,900 ha, or 2.6 times the total approved area for the whole of 2020. KB Securities finds that the approval progress of industrial parks in Vietnam has improved dramatically. The number of industrial zones approved is now 25 vs. 4 in 2020. This acceleration of the government will also be a catalyst for industrial real estate in the coming time.

KB Securities found the long-term and medium-term prospects of industrial real estate positive given the factors mentioned above. Some notable investment opportunities include Kinh Bac City Development (KBC), Viglacera Corporation (VGC), Phuoc Hoa Rubber JSC (PHR), Tin Nghia JSC (TIP) which all own large land bank with low capital costs in key areas, beneficial from public investment demand and supply chain shift. To be more specific, this stock company recommends two main investment opportunities: (1) KBC with an area of leasable land up to 966 ha and urban areas up to 911 ha launched at low costs. KBC's main highlight lies in Trang Cat Urban Area (585 ha), which should be the first-class coastal urban area in Hai Phong; (2) PHR with 15,000 ha of rubber land in Binh Duong. It is planning to convert 5,000 ha of rubber land into industrial zones, which will strongly benefit from the government's accelerated approval process.