Industrial real estate welcomes the ’wave’ of relocation from China

However, the Covid-19 outbreak since early 2020 - causing disruptions to the supply chain in China - has made investors more interested in plans to expand, set up branches or production facilities in Thailand, Vietnam, Indonesia or Myanmar. According to Dr. Su Van Khuong - Senior Director of Savills Vietnam, moving part of the production facilities out of China is a method for multinational companies to hedge risks.

This expert said that Vietnam has always been an attractive destination for foreign enterprises with a young and more mobile workforce than other countries in the Southeast Asian region, low labor costs. In addition, the infrastructure - seaports, road and waterway traffic systems, warehouse systems - are relatively good, the political situation is stable and the economic growth rate is the fastest in the world are also plus points for Vietnam.

Khu công nghiệp Cầu Cảng Phước Đông.

Another advantage of Vietnam is its geographical proximity to China – making it easy for investors to add production facilities – without having to abandon this market of 1.4 billion people.

In addition, according to Mr. Khuong, foreign enterprises moving production facilities to Vietnam will have more opportunities to invest in finance, tourism, real estate and services, while in Thailand, Indonesia or Hong Kong, investment opportunities are increasingly limited.

A report published by VNDirect Securities Company at the end of April also mentioned that Google and Microsoft are moving some production lines from China to Vietnam and Thailand. These two corporations are expected to sell Pixel4A, Pixel5 phones and Surface computers in Vietnam in the second quarter.

According to this unit, in addition to the labor advantage, Vietnam's corporate income tax rate is currently at 20% – among the lowest in Southeast Asia, just behind Singapore. In addition, companies operating in industrial zones also enjoy many incentives such as visa exemption, 2-4 year tax exemption, 3-15 year tax reduction and import tax exemption.

Forecasting the prospects of the industrial real estate market in the North, VNDirect said that industrial zones in Hai Duong and Bac Giang will develop thanks to the Bac Giang - Lang Son expressway, helping to reduce travel time from Hanoi to the border of Lang Son by 1 hour compared to before. In the South, Ba Ria - Vung Tau will become a bright spot when the expressway system connecting Cai Mep - Thi Vai deep-water port with Ho Chi Minh City, Dong Nai and Binh Duong is given attention for development.

According to this unit, the group of enterprises including Sonadezi Chau Duc, Viglacera Corporation, Phuoc Hoa Rubber with land available for lease of about 1,000 hectares will have many opportunities to increase revenue and profit when the land supply in the period of 2020-2021 is still limited, the number of land lease requests increases the most. In particular, Kinh Bac Urban Development Corporation owns Quang Chau Industrial Park located in a high-tech zone that can benefit from the wave of factory relocation of high-tech companies such as Foxconn and LG.

According to the Bank for Investment and Development of Vietnam Securities Company (BSC), industrial real estate will grow from 2021 with the momentum of free trade agreements (FTAs). Commitments on institutional improvement and business environment improvement under the European Union - Vietnam Free Trade Agreement (EVFTA) will create great attraction for European investors.

Next, Covid-19 may cause businesses to accelerate plans to leave China earlier than expected to stabilize operations and protect their employees.

In addition, domestic public investment projects are being promoted, and gradually improving infrastructure will attract more investors, helping industrial parks benefit in the long term.

Dr. Su Ngoc Khuong commented that the process of shifting manufacturing industries from China to Vietnam will take place as early as 2021. According to him, this is the time when businesses need to prepare a good warehouse system to serve the storage, delivery and receipt of goods in the supply chain.

However, Vietnam will have to compete if it wants to attract investment.

Mr. Pham Sy Thanh - Director of the Mekong - China Strategy Study Program (MCSS) of the Vietnam Academy of Agriculture - said that Vietnam will have to compete with Indonesia, Malaysia and Thailand in terms of the attractiveness of the investment environment and institutional quality.

"This is not easy, because attracting high-quality FDI enterprises to industrial parks faces many long-term difficulties that Vietnam has not yet resolved," Mr. Thanh commented.

In addition, the infrastructure of industrial parks in Vietnam is still not synchronous, especially in the South - where the supply of industrial real estate increases slowly - because real estate investors do not want to expand land funds too quickly - causing industrial real estate prices to increase.

Next, Vietnam currently lacks skilled workers with specialized skills. But the digital economy – based on rapid technological change in developed countries and other countries in the region – will reduce the attractiveness of a country that relies on cheap labor, abundant resources, and preferential electricity and water prices to attract foreign capital.

Previously, JLL Vietnam's Q1 real estate market report showed that demand for industrial land in the first months of the year in Vietnam remained high, despite the market being heavily affected by the pandemic.

The average land price in the Northern region increased by 6.5% compared to the same period in 2019, reaching 99 USD per square meter per lease cycle. The occupancy rate of industrial parks as of the end of March reached 72%. In the Southern region, the average land price even increased by 12.2%, reaching 101 USD per square meter per lease cycle as the number of land rental requests increased.

Thanks to that, many industrial real estate enterprises have announced their first quarter business results with a good growth rate compared to the same period last year.

Sonadezi Chau Duc Company recorded revenue of VND 121 billion, 2.5 times higher than the same period in 2019. Of which, revenue from leasing industrial park land increased 3.5 times, reaching VND 103 billion.

Long Hau Joint Stock Company also ended the first quarter with net revenue of VND 206 billion, up 19.7% over the same period. Of which, revenue from leasing land with developed infrastructure and ready-built factories on demand reached nearly VND 159 billion - up 21% over the same period - contributing 77% of total revenue. Revenue from leasing factories and accommodation areas also grew by more than 22%.

Similarly, Kinh Bac Urban Development Corporation's net revenue reached nearly VND556 billion, up 11% over the same period, of which 84% was revenue from land leasing and real estate transfer activities.

According to VNExpress