Forex and interbank market remains stable in H1

Quoc KHAnH

Industrial property outlook

Industrial real estate is closely related to industrial production activities, economic sectors and plays an important role in the country’s production and economic development.

The Government’s Decree No. 82/2018/ND-CP dated 22 May 2018 is regulating the management of industrial zones and economic zones. According to the Ministry of Planning and Investment, by the end of June 2021, Vietnam had 394 industrial zones. There were about 10,853 valid foreign production and business projects with a total registered capital of USD228.4 billion, 69 percent of which has been realised. Domestic investors had 10,186 valid projects with a total registered capital of about VND2.53 quadrillion (USD110 billion), 45.4 percent of which has been realised. BIDV Training and Research Institute has recently released a report analysing advantages, challenges as well as updating the outlook of this sector.

VIETNAM LEADS IN COST ADVANTAGE

Cost is still an important factor that helps Vietnam's industrial zones compete with other countries in the region and globally. According to Savills’s research in 2021, operating cost of an industrial zone is scored on 3 main factors, namely land rent, labor, and electricity and gas cost. Vietnam's cost score is at the best level compared to other countries in the world.

Vietnam is an attractive destination in the China-Plus-One strategy of many multinational corporations for diversifying investment and dispersing global production and supply chains. The country received large industrial production projects from different countries such as South Korea with 9,076 projects worth USD71.8 billion, Japan with 4,701 projects valued at USD63.2 billion, Singapore with 2,706 projects totaling USD61.8 billion. Foreign investors also express interest in industrial property business given the influx of foreign investment into Vietnam.

According to the Ministry of Construction, in 2020 industrial property saw positive growth in both rent and occupancy rate (the national average occupancy rate was about 73 percent). Due to the shift of production from China as well as the EVFTA, demand for industrial land has also increased across the country. In the first 5 months of 2021, average rent of industrial zones in Ho Chi Minh City and Hanoi continued to be high while the supply remained unchanged.

CHALLENGES FOR INDUSTRIAL zONES

Ability to fight against the Covid-19 pandemic effectively to ensure business

The outlook of the industrial property is positive

continuity is the immediate difficulty of industrial zones. The Covid-19 pandemic strongly hit industrial zones in both the northern and the southern regions, causing many factories to cease or suspend operations.

In recent years, industrial zones developed dispersedly, resulting in different occupancy rates. While many industrial zones in Hanoi and Ho Chi Minh City have high occupancy rates up to 90 percent, those in the northern mountainous and central coastal provinces have low occupancy rates, even at 40 percent. Vietnam has not developed different types of industrial zones, including ecological ones. Eco-industrial zones will effectively save a large amount of water, energy and input materials, implement industrial symbiosis, thus significantly reducing production costs, waste and emissions, contributing to environmental protection.

Some industrial zones have poor technical infrastructure with no wastewater and industrial waste treatment plants. According to the data released by the Ministry of Planning and Investment, only 89.8 percent of industrial zones have wastewater treatment plants while the target set for 2020 is 100 percent. Some industrial zones also do not have a complete system of classifying solid waste and hazardous waste.

Currently, 286 industrial zones across the country have been put into operation and play an important role in the economic growth. However, the operation of industrial zones is only regulated by the government decree, with no law on management of industrial zones. This causes difficulties for enterprises in carrying out investment and production procedures as well as affecting their development in the industrial zones. Industrial property developers when investing in projects also face difficulties in site clearance and legal procedures related to industrial zone development.

OUTLOOK UPDATE

The outlook of industrial property development is assessed to continue to be positive thanks to the following factors:

Economic growth: Given the accelerated global vaccination progress, the world economy and Vietnam's economy in particular are forecast to recover in 2021. The BIDV Training and Research Institute forecasts Vietnam’s economic growth in 2021 to be at about 6.1 - 6.3 percent for base scenario provided that Vietnam's main trading and investment partners accelerate their vaccination programme and achieve herd immunity in 2021. In the coming years (2022-2025), it is forecast that Vietnam's economy will continue to recover, possibly reach a growth rate of 6.5-7.0 percent. The macro-economic environment is forecast to remain stable, with inflation being controlled below 4 percent.

Foreign investment attraction: Vietnam still has many competitive advantages, actively participating in many new generation FTAs and is considered as one of the most attractive investment destinations. The government of Vietnam and localities are making great efforts in fine-tuning institutions and improving the investment environment to attract high-quality FDI inflows which are forecast to continue in the coming years. The BIDV Training and Research Institute forecasts that in 2021 FDI capital will continue to be positive with USD30-32 billion being attracted. In the period of 2021-2025, it is forecast that Vietnam will continue to attract about USD150-200 billion, or about USD30 billion per year.

The trend of shifting supply chains is forecast to continue in the coming time in the context of the lingering trade and technology tensions between the US and China. Vietnam will continue to hold a positive advantage from high economic growth coupled with the trend of shifting investment and supply chains out of China. The role and position of Vietnam in the process of restructuring the global production chain will create a breakthrough in the demand for industrial real estate.