Industrial is the hottest real estate segment in Vietnam as the country is establishing itself as an industrial hub for Southeast Asia, global real estate and investment management firm JLL has said.

Both investors and manufacturers eye Vietnam's industrial property

Buoyed by the enforcement of the EU-Vietnam Free Trade Agreement (EVFTA) in August 2020 and by stable fundamentals, Vietnam has received strong interest from both investors and manufacturers for industrial properties, commented Khanh Nguyen, Senior Director, Capital Markets, JLL Vietnam.

In a latest move, Taiwan-based Pegatron, manufacturing partner of the world’s major tech firms such as Microsoft, Apple or Sony, has plans to invest US$1 billion to build a manufacturing complex at Nam Dinh Vu industrial park in the northern city of Haiphong, according to a report from Ministry of Planning and Investment.

International travel restrictions in the first half this year hindered new transactions as foreign investors could not inspect the assets. But Vietnam’s recent resumption of passenger flights for six Asian countries will help expedite the transaction process.

Apart from existing industrial investors such as BW Industrial, Logos, Mapletree, Boustead, JLL has observed a number of local investors and most recently, Japanese investors who are looking to tap into this lucrative segment.

In addition, the demand for hundreds of hectares of industrial development land to master develop an industrial park from international investors is increasing.

However, finding opportunities with suitable zoning and ‘clean and clear’ legal title remains challenging, especially in southern provinces such as Dong Nai and Binh Duong, Ms. Khanh Nguyen emphasized.

Although it is an attractive segment, making deals still challenges investors. Finding the sizable land suitable for ready-built warehouse/factory for lease development at the right location, and the increase in industrial land prices while ensuring the investment to meet a certain return are the key concerns for investors, not to mention the arising competition from both existing and new players.

Khanh Nguyen, Senior Director, Capital Markets, JLL Vietnam. Photo: JLL Vietnam

Investment in the residential segment has slowed down this year; mainly due to the effects of both Covid-19 and local authority’s tightened control over legality of the real estate market since last year together with credit quality control in real estate.

One of the notable transactions that is publicly announced earlier this year is the joint venture between Mitsubishi Corporation (40%), Nomura Real Estate Development (40%) and Vingroup (20%) to jointly develop 10,000-home subdivision in Vinhomes Grand Park, a residential township in District 9, Ho Chi Minh City.

The investment of US$650 million into Vinhomes by KKR-led consortium or equivalent to 6% stake of the company has made headlines recently.

Another recently announced transaction is the partnership between Swire Properties and City Garden JSC to jointly develop “The River”, a luxury residential project located in Thu Thiem, Ho Chi Minh City.

With capital from foreign investors being disbursed heavily recently, many sales activities have been launched along with the rapid construction progress of the project.

Again, this has shown regional investors’ confidence in fundamentals of Vietnam and its market recovery after the Covid-19 impact.

As the global economy remains uncertain, the office and retail segments have started to feel the heat.

For office, although rents are stable and occupancy remains high, demand for office space acquisition and expansion decreases.

The retail segment has taken a hard hit as shopping malls are struggling to maintain footfall as end-consumers curb their spending at a time of global recession. However, demand for acquiring operating assets is still high for core investors whose strategy is to hold the asset in the long term and who are very familiar with the deal and market structuring in Vietnam.

Value-added investors are still actively looking for distressed opportunities to generate heightened yields. However, given the global economic uncertainty, such investors would be more conservative in their underwriting of the assets and more selective, adding more premiums in their required returns and this often leads to the pricing gap expectation between the seller and the buyer.

The pandemic certainly has impacts on real estate businesses. Unlike in the peak years, in general, there will be a number of domestic real estate firms facing liquidity problems. Foreign investors will also be more cautious about their investment.

Mergers and acquisitions (M&A) is not the only way to grow a business, as there are other alternatives to access larger sources of capital. However, businesses still need to ensure clarity and transparency in order to be ready to participate in the potential but also challenging capital markets, Khanh Nguyen from JLL warned.

In the case of Japanese investors, in a list released by the Japan External Trade Organization (JETRO) of 30 Japanese companies that are poised to receive subsidies from its government to move production facilities from China to Southeast Asian countries, half of them eye Vietnam as a possible destination.