Growing foreign direct investment and a move up the value chain mean Vietnam’s industrial real estate sector has a bright future.
“This is very fertile ground,” says Troy Griffiths, Savills deputy managing director for Vietnam. “We see a lot of FDI into manufacturing from Japan, South Korea, Singapore and Thailand.”
Vietnam attracted FDI flows of $35.6bn in 2017, up a hefty 44.4% from the previous year, with Japan the biggest, contributing $9.11bn. Manufacturing and processing FDI made up 44.2% of the total. Asian manufacturers want to take advantage of a skilled, youthful workforce and wages, which are less than half the level of China for manufacturing staff. Vietnamese workers are also cheaper than their counterparts in Malaysia, Indonesia, The Philippines and Thailand.
However, “the Vietnamese government wants to move beyond a low-wage economy and is targeting growth in high-tech manufacturing, renewable energy and smart city projects,” says Griffiths.
The industrial investment market is in its early stages. A landmark deal was a sale-and-leaseback transaction earlier this year at VSIP Park – a Vietnam and Singapore joint venture – which reflected a yield of 10.7%.
Griffiths says: “The capital markets are very tight, there is not a lot of liquidity as stock is tightly held but the VSIP deal is an important one to demonstrate what can potentially be done and the returns. Industrial yields above 10% compare favourably with 5-6% for office deals.”
Foreign investors in Vietnamese manufacturing currently hold their assets on balance sheet and Griffiths believes this will offer an opportunity to real estate investors as the market matures.
Meanwhile the logistics sector is also set for growth, due to rising exports, growing domestic consumption and a lack of modern facilities. “The government has invested heavily in infrastructure, although still more is needed,” says Griffiths.
International third party logistics companies are becoming more active in Vietnam and will drive demand for larger modern facilities.
For more information, click 100718 – Savills Vietnam – Manufacturing opportunities in Vietnam industrial and logistics – EN
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