The Strong Development of Industrial Real Estate in Vietnam

Vietnam holds the strategic position of being located between China and Singapore with 3,260 km of coastline, adjacent to the East Sea, and one of the world’s key maritime trade routes. About 40% of goods transported from the Indian Ocean to the Pacific Ocean pass through this area to reach China, Japan, South Korea, and the United States.

Since opening up in 1986 with only about 335 hectares of land dedicated to industrial zones, the Vietnam market now has expanded to nearly 150,000 hectares in 2024, gradually establishing itself as one of the leading manufacturing hubs in Southeast Asia.

Previously, the industrial real estate market mainly focused on leasing land in industrial zones to build manufacturing plants. Since 2018, the market has grown strongly with a variety of products such as industrial land, ready-built factories, ready-built warehouses, mixed-use warehouses, build-to-suit warehouses, and cold storage.

This impressive growth can be attributed to Vietnam’s export-oriented economy, the creation of specialized Industrial and Economic Zones, and a young, talented, and cost-effective workforce. With these attractive factors, Vietnam can confidently compete as an industrial hub for the entire Southeast Asia region.

According to data from Cushman & Wakefield, as of the third quarter of 2024, the industrial real estate market in the Northern Key Economic Region (Hanoi, Bac Ninh, Hai Phong, Hung Yen, Hai Duong, Vinh Phuc, Quang Ninh), and the Southern Key Economic Region (Ho Chi Minh City, Binh Duong, Dong Nai, Long An, and Ba Ria - Vung Tau), continues to be a bright spot for investment, specifically:

• Existing industrial land supply: Over 41,000 hectares, occupancy rate at 77%, average primary rental price at 154 USD/sqm/lease term.
• Existing ready-built factory supply: 10.3 million sqm of floor space, occupancy rate at 76%, average rental price at 4.8 USD/sqm/month.
• Existing ready-built warehouse supply: 7.7 million sqm of floor space, occupancy rate at 77%, average rental price at 4.6 USD/sqm/month.

The industrial real estate M&A market has also been booming thanks to policies promoting investment in key connecting infrastructure such as the North-South Expressway and Long Thanh International Airport. The new Land Law, the Real Estate Business Law, and other guiding decrees, will simplify legal procedures, increase the supply of industrial real estate, and create more opportunities for foreign investors.

As of November 2024, FDI into Vietnam reached 27.26 billion USD, up nearly 1.9% compared to the same period last year, with Singapore, South Korea, China, and Hong Kong leading the way. Statistics from 2020 to September 2024 show that the total value of real estate M&A transactions reached 2.94 billion USD, with industrial real estate being the leading segment, accounting for 40%. In the first nine months of 2024 alone, industrial real estate accounted for 91% of the total transaction value of 178 million USD, according to Cushman & Wakefield.

Source: Cushman & Wakefield, MSCI RCA

In May 2024, Taiwan's Tripod Technology Corporation leased 18 hectares of land in Chau Duc Industrial Park, Ba Ria - Vung Tau, with a total registered capital of 250 million USD, to build a factory for manufacturing electronic circuits and circuit boards. In Bac Ninh, Taiwan's Johnson Health Tech Corporation also registered an investment project with a total capital of 100 million USD in Thuan Thanh 1 Industrial Park to build a factory for manufacturing fitness equipment.

Earlier, in March 2024, Singapore's investment fund Mapletree Logistics Trust spent 68.4 million SGD (over 50 million USD) to acquire two Grade A warehouses in Binh Duong and Hung Yen, strategically located near Ho Chi Minh City and Hanoi."

In addition to traditional types of industrial real estate, the market is also witnessing emerging types within industrial zones. In May 2024, VNG Corporation and ST Telemedia Global Data Centres announced a partnership to build and operate international-standard data center projects in Ho Chi Minh City. In July 2024, Daiwa House Logistics Trust completed the acquisition of the D Project Tan Duc 2 in Long An province for 26.5 million USD, marking the first time this trust fund owns real estate in Vietnam. Additionally, in August 2023, Lineage, one of the industrial real estate investment trusts (REITs), completed a joint venture agreement with cold storage operator SK Logistics to operate two cold storage projects in Hanoi and Hung Yen. These cold storage facilities serve a diverse range of customers, including supermarket chains providing food to local households.

Investors have recently started to pay attention to stable and sustainable energy source, as this is a vital component for the success of most industrial properties. Specifically, in June 2024, Sembcorp announced that it had completed the acquisition of nearly all shares in three out of four subsidiaries of Gelex Group through its subsidiary Sembcorp Solar Vietnam. With these transactions, Sembcorp will add a total of 196MW of wind and solar power capacity to its portfolio.

Notable Industrial Property Transactions 9M 2024

Source: Cushman & Wakefield, MSCI RCA

Looking at the transactions in 2024, it can be said that industrial real estate M&A brings many benefits to the market. This type of investment let businesses access new capital sources, strengthen financial capacity, and expand investment opportunities. Moreover, M&A enables businesses to quickly scale up operations and increase market share. It also promotes the development of real estate to higher standards in terms of technology, quality, and environment. Finally, M&A allows businesses to learn from the experiences and trends of reputable global investors.

In an industrial real estate M&A deal, both the buyer and the seller side set important goals and criteria before proceeding with the transaction. For buyers, who are institutional investors, they are interested in criteria such as projects with clear legal status, favorable locations, and being situated in industrial zones in existing and emerging industrial hubs like Quang Ninh, Hai Duong, and Vinh Phuc. Buyers also expect reasonable prices, in line with market valuations and current conditions. The quality of assets is also a crucial factor, with a preference for modern ready-built factories and Grade A ready-built warehouses to attract high-quality tenants and achieve better rental rates.

For sellers, investors are concerned about whether the partner has strong financial capacity and the ability to engage in long-term partnership. Their products need to meet the buyer's criteria, be conveniently located in industrial zones, and have good connections to seaports and airports. Additionally, major export markets like the US and Europe are now requiring industrial products to meet green building standards. Therefore, sellers need to prepare assets to meet these standards and obtain green building certifications.

However, industrial real estate M&A also faces many challenges. For foreign investors, the main difficulties lie in legal issues, administrative procedures, and access to good real estate. Finding good opportunities with stable income streams is also a major obstacle. Moreover, most properties for sale are not widely advertised, limiting access to good assets. Accurate asset valuation is a significant challenge, as incorrect valuation can lead to inaccurate decisions and losses. Therefore, valuation is often handled by reputable international firms. Additionally, ensuring post-M&A operations is a considerable challenge, requiring harmony in processes, systems, and corporate culture.

In November 2024, the announcement of Donald Trump's victory in the United States’s presidential election has created a buzz in the market regarding the future development of the industrial real estate sector. Looking back at the 2017-2018 period, some of his trade policies have been one of the contributing factor to influence major global manufacturers to expand production facilities outside of China under the "China +1" strategy and supply chain diversification.

According to Cushman & Wakefield's forecast, during the 2024-2027 period, the supply of industrial real estate will grow significantly, creating opportunities for foreign investors to participate in the M&A market. Specifically, for the provinces in the Northern Key Economic Region and the Southern Key Economic Region, the future supply of industrial land will increase by 10,600 hectares, with an annual growth rate of 7.5%. Meanwhile, ready-built factories and ready-built warehouses will increase by 1.9 million square meters and 2.6 million square meters , respectively, with annual growth rates of 5.9% and 10.1%.

The shortage of high-tech assets, modern warehouse space, plus strong demands from businesses in the region are driving the potential of the industrial real estate market. Cushman & Wakefield team in Vietnam continues to receive requests from investors for consultation regarding industrial and logistics assets through the acquisition of land funds and operating properties. Asset quality, rental growth rate, transaction size, and remaining land use rights are key factors considered in investors' decisions.

Vietnam is developing its economy towards export and encouraging business in this sector. With the ambition to promote Vietnam as a new industrial hub in Southeast Asia and the efforts of the Government, we believe that Vietnam's industrial market will continue to be a magnet for investment capital.