Two challenges face industrial property market in 2024

By Anh Ky   December 22, 2023 | 02:00 am PT
Lower profitability and fierce competition from neighboring countries will likely put pressure on Vietnam's industrial property market next year, according to experts.

Recent studies speculate that the market will grow steadily with several bright spots in 2024, but it will face two emerging challenges.

First, the market's profitability is expected to fall due to high financing costs driving down properties' capitalization rate, a valuation commonly used to measure a real estate project's rate of return.

"The capitalization rate in Vietnam has climbed from 9% to 12% due to an increase in the number of high-quality ready-built factories and warehouses across the country," said Alex Crane, CEO of real estate consultancy Knight Frank Vietnam.

In their Q3/2023 market report, real estate firm Jones Lang LaSalle (JLL) forecasts that rental policies for ready-built warehouses need more flexibility and incentives to attract clients.

The second challenge stems from the intensifying price competition from neighboring Asian countries.

The rental price for industrial land on the outskirts of Bangkok, Thailand, is currently US$82-164 per square meter over the lease cycle.

Meanwhile, it is $80-250 on Hanoi's outskirts and $95-280 on HCMC's outskirts.

Regardless of free-trade agreements, the minimum global tax, high logistic costs and rising construction and labor costs in Vietnam will deter manufacturing businesses from investing in Vietnam, Crane said.

"Industrial real estate, particularly manufacturing facilities, will still be a major segment in Vietnam despite facing difficulties in attracting investors and boosting occupancy rate in 2024," he said.

Real estate experts are highly optimistic about the long-term growth of the segment.

Vietnam's economic growth is expected to reach 4.7-5% this year, according to the International Monetary Fund and the financial services group HSBC.

Data from the General Statistics Office of Vietnam shows that newly registered foreign direct investment this year topped $28.85 billion as of Nov. 20, marking a 14.8% year-on-year increase.

The country has the largest infrastructure spending in the Southeast Asia region, according to market research company Mordor Intelligence.

Its data center market, which supplies and manages necessary physical infrastructure for the technology industry, is also among the fastest growing in the world with 28 data center projects totaling 45 MW in capacity, according to real estate market research firm Savills Vietnam.

Additionally, the real estate and logistic industries will see an uptrend in mergers and acquisitions in the following years, bringing plenty of short-term and medium-term clients and foreign investors along with it, Crane said.

Compared to 2022, industrial land rental prices in 2023 have jumped 14% on Hanoi's outskirts and 58% on HCMC's outskirts due to their high occupancy rate, at 78% and 92%, respectively, according to Knight Frank.

In the past three months, southern Vietnam saw 460,000 square meters of new ready-built warehouses developed by property firms BWID, LOGOS, Emergent Capital Partners and Cainiao, according to JLL.

Average monthly rental prices for ready-built factories and warehouses are currently at $4.5 per square meter in southern Vietnam and $4.7 per square meter in northern Vietnam, according to Knight Frank.

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