Rentals at IPs in south heading upwards

Latest JLL report notes higher rentals since end-2016 and predicts trend will continue.

Land rentals at industrial parks (IPs) in Vietnam’s surged in the second quarter of this year and are expected to increase in the future, according to JLL’s latest Ho Chi Minh City Property Market Overview Quarter 2 report.

Rentals rose $2 to $5 per sq m compared to the fourth quarter of last year.

Net land rentals in Ho Chi Minh City reached a peak in the region, at an average of $40 per sq m, while other cities asked rents of between $30 and $100 per sq m. 

Monthly rent at factories in the quarter was relatively unchanged compared to the first quarter, up $2 to $5 per sq m on short to medium-term leases.

Industrial land in the south welcomed more than 730 ha of new supply from the Le Minh Xuan III IP in Ho Chi Minh City and the Bau Bang Expansion IP in Binh Duong province.

Total leasable land area was recorded at 25,556 ha as at the end of the quarter, up 2.8 per cent compared to the end of last year.

JLL predicts the southern IP market will see stable supply while demand is likely to improve in the time to come.

Between now and the end of the year, supply of industrial estates at operating IPs is predicted to increase slightly. Meanwhile, the pipeline supply of land is foreseen to be relatively quiet due to no large completions. 

The take-up rate and rentals in the industrial market are expected to continuously move upwards in the months to come, mostly due to the positive foreign investment capital and the government’s efforts to improve the business environment.

Over 75 per cent of foreign direct investment (FDI) to Vietnam goes to the manufacturing sector, resulting in growing demand for integrated IPs around the country.

Mr. Troy Griffiths, Deputy Managing Director of Savills Vietnam, said that labor costs in China have risen substantially over recent years, pressuring labor-intensive industries such as garments and textiles and even processing and manufacturing.

China is facing an outbound wave of foreign companies seeking better production factors, especially regarding labor costs. According to JLL figures, manufacturing wages in Vietnam range from $1 to $1.4 per hour.

“As a neighboring economy with convenient waterway and road connectivity to China, Vietnam stands out as an ideal recipient of this wave,” said Mr. Griffiths. “Supporting factors include ASEAN membership, FTAs with large export markets, and labor costs at less than half of those in China.”

Moreover, Vietnam’s edge in its young and skilled workforce is likely to continue to drive manufacturing sector growth of 7-8 per cent annually, according to JLL’s report.

A challenge for investors in Vietnam’s industrial real estate sector is rental prices. Mr. Griffiths told VET that as the domestic economy improves, demand to service local providers will put price pressure on traditional IPs.

by Quynh Nguyen / VET