Land scarcity to drive growth for industrial real estate companies
The demand for leasing industrial land in Vietnam remains strong, but the supply is limited, leading to a shortage of land funds. As a result, certain industrial real estate companies are predicted to experience positive business outcomes. In the first quarter of 2023, the industrial park real estate market saw a modest increase of 2.1% in available land for rent compared to the end of 2022. This growth was mainly attributed to the addition of leased land from industrial zones in Long An, Bac Ninh, and Hai Duong provinces.
Phan Van Mai, Chairman of the HCM City People’s Committee, stated during a meeting in late April that the city is also facing a shortage of industrial land for leasing, which hampers its ability to attract significant projects and investors for new companies. Dong Nai province is also experiencing a scarcity of industrial land funds, which has limited foreign direct investment (FDI) capital. Consequently, the province is no longer among the top five localities with the highest FDI inflows in the country, according to the 2022 report on foreign direct investment.
Nevertheless, the occupancy rate in tier-1 markets, including Hanoi, Hai Phong, Hai Duong, Hung Yen, Bac Ninh, HCM City, Dong Nai, Binh Duong, and Long An, remains high. In the southern region, industrial zones have an average occupancy rate of 85%, with Binh Duong’s largest industrial parks reaching an impressive 94% occupancy rate. The northern industrial zones have slightly lower occupancy rates, averaging around 80.6%, a decrease of approximately 2.2 percentage points from the previous year.
During this period, rental prices in the southern industrial park market witnessed a 4% year-on-year growth, amounting to $172.8 per square meter. This growth contributed to a 9% annual gross growth rate over the past five years. Conversely, rental prices for industrial land in the northern region only increased by 2.2% year-on-year, reaching $122.9 per square meter in tier-1 market provinces. Bac Ninh and Hai Duong provinces experienced the highest rental price increases, ranging from 3% to 5% year-on-year, thanks to new supplies with more favorable rental rates compared to the general market, as reported by VietFirst Securities Corporation.
Vietnamese industrial parks currently hold greater appeal than their counterparts in neighboring countries due to the country’s relatively stable currency depreciation compared to Malaysia, Indonesia, and India. Industrial land rent in Vietnam is currently 25-40% lower than in other regional countries. Additionally, Vietnam’s strategic geographical position, which is close to key Asian supply chains, further enhances its attractiveness. Vietnam is expected to benefit significantly from the trend of relocating plants from China, particularly for large manufacturers such as LG Group, which plans to invest $4 billion, and Samsung, which intends to increase its investment capital to $20 billion.
However, FDI inflows show signs of decline due to concerns about an economic recession and the US Federal Reserve’s ongoing interest rate hikes, resulting in a slight increase in industrial land rent in Vietnam this year. On the stock market, listed industrial real estate enterprises experienced a 4.2% growth in total revenue in the first quarter of 2023 compared to the previous year, but their profits declined by 8.6%. In the last quarter of 2022, these enterprises saw an 18% decrease in total revenue and an 88.5% decline in total profit year-on-year. The recovery in business performance was primarily driven by Kinhbac City Development Holding Corporation (KBC), whose parent company recorded a 95.6% year-on-year increase in after-tax profit, amounting to VND940.7 billion in the first quarter. This accounted for 54.8% of the industry’s total after-tax profit during the same period.
Considering the potential for higher rental prices for industrial land and the consistent demand from the FDI sector, industrial park real estate enterprises are expected to continue their recovery in the near future. VietFirst Securities also highlighted that companies owning land in key areas, especially in the north, have the opportunity to emerge and attract FDI inflows shifting away from China.