Production shift from China boosts industrial park leasing in north Vietnam
Manufacturing shift from China will continue for the time being regardless of the situation concerning the trade war, given China’s current low fertility rate, higher labor costs and overly concentrated risks of production.
The ongoing US - China trade tension and a growing trend of production shift from China have been main reasons behind the significant increase in industrial park leasing in the past six months, according to Viet Dragon Securities Company (VDSC).
According to VDSC, Kinh Bac City Development (KBC) and Viglacera have been the top two beneficiaries from such trend.
During the January – June period, KBC leased around 60 hectares, up 15% year-on-year, while Viglacera is on track to lease 105 hectares, up 362%. Notable investment was 15 hectares leased by Foxconn in KBC’s Quang Chau Industrial Park. The tech corporation also plans to set up another factory in an area of 10 ha in Viglacera’s Dong Mai Industrial Park in Quang Ninh province.
Most new comers are tech firms, confirming the ongoing manufacturing shift that lift up rental demand, especially in the north, stated VDSC.
VDSC’s calculation showed there is an 11% increase in rental price in industrial zones owned by KBC and Viglacera.
For KBC, most of its zones are located in more favorable locations, thus having a relatively higher rental price at US$78 per square meter on average at end-2018. Meanwhile, Quang Chau experienced the most significant surge in rental rate by 16%.
Viglacera, on the other hand, has seen the increase in leasing in more remote zones, such as Phu Ha, Tien Hai and Dong Van IV, given their previous lower base price levels, ranging from US$40 - 60 per square meter. This suggests rental demand is growing in far-off regions with adequate infrastructure and workforce.
VDSC expected KBC and Viglacera to continue experiencing favorable leases given immediate supply remained for the second half of 2019.
Nevertheless, supplies in prime locations in the South, including Ho Chi Minh City, Binh Duong and Long An, temporarily dried out due to standstill in procedure or compensation issues, stated VDSC.
VDSC forecast as trade tension will go on for a while; or even in case any reconciliation is achieved, manufacturing shift will still keep on, given China’s current low fertility rate (1.62 versus ASEAN’s average of 2.17), higher labor costs (1.61x of ASEAN’s average) and overly concentrated risks of production.
Additionally, most enterprises that plan to move out of China have been keeping low profile amid the tension due to issues related to layoffs, compensation for workers, the relationship with suppliers or even the stock price. Recent reports said that Apple has been encouraging its major suppliers, including Foxconn, Pegatron, Wistron, to look for other options.
Uncertainties of Trump’s action are expected hasten the exodus. Firms see the move as a must regardless of whatever tariffs imposed. The relocation however takes time, of at least 18 months for such some huge enterprises.
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Read The Hanoi Times to stay up to date on developments in Vietnam.
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