CBRE Real Estate Outlook – Part 4 (Market Outlook + Industrial Sector)

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March 15, 2016

Industrial Sector

HO CHI MINH CITY

HCMC continues to attract a high inflow of FDI. This is attributed substantially to the city improved infrastructure. No new industrial park was opened in 2015. Two reasons are that the land bank is limited and HCMC authorities are stricter in project approval. In fact, HCMC intends to attract more high tech companies in electronics and IT sectors and develop more high tech and IT focused parks. The notable example is Samsung’s third campus in Saigon High Tech which also attract several of its vendor to follow suit. HCMC houses major airport and seaports which account for 2/3 of Vietnam trade volume. This has led to high demand for warehouses, factories and industrial land from foreign investors. The increases in E-Commerce and local consumption for FMCG are key demand drivers.

Binh Duong Province

Binh Duong authority is active in finding investors. The fast growing period in 2007 and 2008 have created an excess supply of industrial spaces which is now still being absorbed by new and expansion investment. As such, no new supply has been introduced from 2012 to 2016. In 2017, one new industrial park will be operated in Thai Hoa District.

Binh Duong province aims to attract more high tech and sustainable industries. However, with TPP sign off this year, with a reasonable supply and competitive rent, this province is still attractive to conventional industries such as garment and FMCG.

Dong Nai Province

Infrastructure improvement is a key supply driver for the province. The HCMC – Long Thanh – Dau Giay highway and Long Thanh airport are key projects that will attract investors to Dong Nai province. There was no new supply in 2015. Three industrial parks are under planning and one is under construction. This new supply will be operated to coincide with main infrastructure completion. Significant projects are Amata High Tech park in Long Thanh District and Nhon Trach 4 project in Nhon Trach District. Mechanics and F&B are major industries in Dong Nai.

Long An Province

Low labor cost and close distance to water and HCMC are key strengths of this province. However, the province has had low attention from investors due to uncompleted infrastructure. No new industrial park was opened in 2015. The next wave of new supply expected in 2016 to 2018 will change this market. Garments and textiles are key industries in Long An.

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Rental Forecast

Ho Chi Minh City

Ready-built-factory rent increased in 2015 due to limited space and rising demand. Supply in good locations is now limited. High demand for warehouse space comes from retailers and FMCG companies. The falling oil price, strong FDI and steady growth in trade and infrastructure development are other factors that encourage investment in HCMC. This will lead to high demand for ready-built-factory and industrial land in the next three years. In addition, the TPP and FTA will attract SMEs to open businesses in Vietnam. Rents for ready-built-factory units are expected to increase by 5% in 2017 compared to 2015.

The completion of Long Thanh airport will have a negative effect on the HCMC industrial market but this will not happen until after 2020.

Industrial land rents are expected to increase by 2%. Industrial parks in good locations will see larger increases. In contrast, inferior industrial parks will reduce their rents.

Binh Duong Province

Rents in the Binh Duong market will increase at a slower pace. These are expected to increase by 2.6% in 2017. New supplies in 2017 will provide more options and slightly decrease rents. Industrial land rents are expected to remain stable over the next three years.

Dong Nai Province

Recently, Dong Nai has attracted the attention of investors due to two major infrastructure projects: HCMC-Long Thanh-Dau Giay highway and Long Thanh International airport. However, rents will be stable and slightly increase in the next three years. There are two reasons for this. Firstly, Long Thanh airport will not complete in the next three years. Secondly, the current stock is sufficient and landlords offer competitive rents to improve the occupancy rate. Ready-built-factory rents are expected to increase by 1.2% in 2017. Industrial land rents are expected to be stable.

Long An Province

Industrial land rents in Long An are higher than in other provinces because of high compensation costs. Landlords will not increase their rents in the next three years in order to maintain their competitiveness to other provinces.

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Vacancy Forecast

Ho Chi Minh City

The vacancy rate is expected to be lower than 20% in 2016 when no new supply comes to the market. Although landlords have active pre-launch leasing campaigns, the vacancy rate will be higher in 2017 and 2018 due to new supplies.

Binh Duong Province

The vacancy rate is expected to fluctuate at around 30% over the next three years. This is a blended rate between performing parks with track records such as VSIP, My Phuoc and Ascendas and the remaining parks with low performance.

Dong Nai Province

No new supply in the next three years will allow the market to absorb remaining space. The vacancy rate is expected to drop by 2 percentage points in 2016 and 3 percentage points in 2017.

Long An Province

Long An has a good mix of limited performing parks and the majority remainder parks with poor performance. This have led to a low occupancy rate in the Long An market. In the next three years, more new supply will balance efforts to increase occupancy rates at mature industrial parks. The vacancy rate is expected to fluctuate at around 60%.

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