Experts Identify Several Challenges With The Current Industrial Real Estate Market

According to analysts, the industrial real estate market is gradually encountering various challenges, including legal procedure obstacles, competition for attracting Foreign Direct Investment (FDI), and the implementation of a global minimum tax.

Prolonged shortage of new supply leading to rising rents

In Q1 2023, both the Southern and Northern markets saw no introduction or operation of new supply.

Regarding industrial parks in Vietnam, statistics from VNDirect Securities Company showed that the total land area of industrial parks increased by 5.3% compared to the same period and remained unchanged from the previous quarter, at around 41,950 hectares, with 66.6% of it being for rent, equivalent to approximately 27,950 hectares (a 13.2% increase compared to the same period).

High demand when no new supply is to be seen, all five key industrial provinces/cities in the South experienced a similar trend of rising rents and occupancy rates. The average rent and occupancy rate of industrial real estate increased by 21.8% and 0.5 percentage points compared to the same period, reaching $185 per square meter per lease term and 87% respectively. Dong Nai continued to lead in rent growth in Q1, with a 2.2% increase from the previous quarter and 24.8% from the same period, reaching $183 per square meter per lease term.

In the Northern market, after impressive growth in Q4 last year, there was no introduction of new industrial real estate supply at the beginning of this year. The total land area increased by 6.5% compared to the same period and remained unchanged from the previous quarter, at 16,915 hectares. The total rental area remained stable at 11,923 hectares, accounting for 70.5% of the total land area.

Similar to the South, the shortage of new supply also drove the activities in all Northern provinces/cities. While the average occupancy rate continued to improve with a 1 percentage point increase from the previous quarter and a 0.3 percentage point increase from the same period, reaching 80%, the average rent rose to a new high of $131 per square meter per lease term (a 10.6% increase from the same period). Notably, Hung Yen showed the highest rent increase, up approximately 16% from the same period, reaching $117 per square meter per lease term in Q1 2023.

In the warehouse sector, both major markets welcomed a large amount of new modern supply in Q1. In the South, about 164 million square meters came from the introduction of projects such as BWID Tan Dong Hiep B and SLP Park Long Xuyen, increasing the total warehouse supply by 33.2% compared to the same period, reaching 4.04 million square meters, with 49.5% being modern supply. In the North, Q1 welcomed 131 million square meters of warehouse space from notable projects like Vietlog, Logis United, and SLP Nam Son Hap Linh, bringing the total warehouse supply to approximately 1.63 million square meters, a 40.3% increase compared to the same period.

In the ready-built industrial real estate segment, the Southern market witnessed strong growth with over 0.21 million square meters of new supply in Q1, bringing the total supply to approximately 5.02 million square meters. The average rent remained unchanged from the previous quarter at $4.75 per square meter per month, and the occupancy rate decreased by 0.8 percentage point to 82.4%. In contrast, in the North, the total supply of ready-built factories increased by 4.6% compared to the same period, reaching 2.37 million square meters. The average rent increased by 2.9% compared to the same period, reaching $4.85 per square meter per month.

Continued supply challenges

Looking at the prospects for the second half of this year and 2024, experts believe that the industrial real estate market is increasingly facing three main challenges.

Firstly, there is increasing competition to attract FDI from countries in the region. Mr. Le Anh Son, an analytics expert from VNDirect, pointed out that while Vietnam is transforming into a centre for electronic equipment production, Indonesia and Malaysia are focusing on electric vehicle supply chains. Major investors such as Tesla, BYD, and Hyundai are investing in electric vehicle battery production in Indonesia, while Samsung is investing in Malaysia.

According to Mr. Son, the development of electric vehicle and semiconductor industries will shape the investment landscape in ASEAN. As the potential for attracting FDI in these two sectors is expected to continue increasing in the coming years, countries in the region are actively promoting attracting FDI for electric vehicle production, including battery production, and encouraging consumers to use electric vehicles. However, Vietnam is lagging behind other countries in this trend and may lose attractiveness in attracting FDI.

Secondly, from 2024 onward, a global minimum tax will be implemented in many countries. To adapt to this new tax policy, some countries are studying the use of domestic minimum supplementary taxes. Malaysia and Indonesia have already introduced domestic minimum supplementary taxes in addition to implementing the global minimum tax. Thailand is also proactively prioritizing the study and implementation of domestic minimum supplementary taxes.

However, Vietnam has not yet introduced specific measures to enhance the competitiveness of industrial real estate and must wait until the next National Assembly session in October. This could reduce Vietnam’s attractiveness and competitiveness in the investment environment.

Thirdly, due to delayed approval procedures, the industrial real estate supply will continue to be cut short until the end of this year. In the Southern market, the new supply for the 2024 – 2027 period is only about 1,388 hectares. In the North, despite several projects awaiting approval, the shortage of new supply will likely continue until the end of 2023. After that, approximately 3,757 hectares of industrial land are expected to be put into operation in the 2024 – 2026 period.

In that context, two shifting trends will emerge. Investors will increasingly pay attention to the second-tier market as first-tier market land reserves are limited, and multi-story warehouses will replace simple warehouses.

Furthermore, with the impending implementation of a global minimum tax, strategic industrial projects with advantageous locations near major transportation hubs and high-quality, modern, and comprehensive infrastructure will become more attractive to investors.

Source: re-uploaded and translated from batdongsancongnghiep.vn