Factory relocation from China warms up Vietnam industrial property market
10/09/2019 16:54
Experts say impact of the US-China trade war and Vietnam’s advantages such as lower construction, labor costs, and development prospects have warmed up the domestic industrial real estate sector.

The wave of factory relocation to Vietnam

In early 2019, Hong Kong firm Goertek, which assembles Apple's AirPods headset in China, spent $260 million to build a new factory in Que Vo Industrial Park (IP), Nam Son commune, Bac Ninh city. This is one of firm's moves to avoid strong U.S. tariffs on products made in China.

Unpredictable developments of the US-China trade war have made many foreign companies move to Vietnam to set up new factories. This has brought a new breeze to the local industrial real estate market.

Not only Goertek, many factories from China operating mainly in the fields of electronics, textiles, footwear and spare parts production, such as Foxcom, Sharp, Lenovo, Nintendo Hanwha, Yokowo, Oasis, Shuafu, and Kyocera and Oasis, have considered plans of relocation or already built factories in Vietnam.

At the end of last year, Hanwha, which is one of the world’s 500 largest corporations, opened its 9-ha Hanwha Aero Engines aircraft spare parts factory in Hoa Lac Hi-Tech Park, with a total investment of $200 million.

Previously, the Japan-based Yokowo Group also spent $18 million on its 3.6ha factory in Dong Van 2 IP, Ha Nam province.

Even Chinese companies themselves are unsettled by the battle of the world's two largest economies with domestic production chains.

Vietnam industrial property market
TCL is one of the major Chinese corporations to relocate its factory to Vietnam to avoid tariffs. Photo: Twitter

Earlier this year, China-based firm TCL quickly chose a 7.3ha site in Binh Duong province to set up a TV factory with an investment of $53.56 million. Meanwhile, the apparel giant Huafu also spent $362 million to build a factory in Long An to access cheaper materials, reduce labor costs and avoid tariff barriers.

The shift of TCL and Huafu shows that not only are multinationals concerned about high tax rates, domestic companies are also forced to find a "safe habour” for themselves.

Vietnam is now the fastest growing market in Southeast Asia 

The Asian Development Bank noted that Vietnam maintained the fastest growing economy in Southeast Asia this year, with a GDP growth rate of 6.8%. While this figure in Indonesia is 5.8%, Malaysia 4.5%, Thailand 3.5% and Singapore 2.4%.

Last year, World Bank also rated Vietnam as the 69th out of 190 economies that are easy to do business, above Thailand, Malaysia and Singapore.

In addition, factors such as abundant labor resources at affordable costs and lower factory construction costs than other countries in the region make businesses pay more attention to building factories in Vietnam.

Vietnam industrial real estate
Shipments from the US to Vietnam are on the rise, as many companies try to avoid tariffs on Chinese products. Photo: Reuters

According to Trading Economics, the average salary in manufacturing in Vietnam is $237/ month, while this figure in Malaysia, China and Thailand reaches $924, $866 and $412, respectively. In July 2019, Vietnam's PMI was 52.6, with industrial production growth of 9.6%, higher than other major economies in the region.

In the firt quarter of 2019, the US continues to be the largest import market of Vietnam, accounting for 40.2% of total, according to US Census Bureau.

Industrial real estate grows thanks to FDI

Vietnam's industrial real estate segment is growing on the rise of FDI inflows during the past decade. According to the Ministry of Planning and Investment’s statistics in the first half of this year, the industry received 1,723 newly registered FDI projects, with a total investment of $7.41 billion. In which, manufacturing segment attracted 605 projects, accounting for 71.2%, or $13.15 billion, up 39.8% year on year. These capital flows mainly come from companies based in Hong Kong, Korea and China.

John Campbell, Senior Consultant, Savills Vietnam Industrial Services, said: “Although occupancy in key provinces grew year on year, available land coupled with an array of upcoming projects has seen foreign companies significantly increasing investment in Vietnam.”

Campbell added that manufacturers are showing interest in the Central Regions while developers are actively converting agricultural land to industrial usage, guaranteeing additional supply.

Savills' latest research shows Good land supply is facilitating incoming manufacturing projects and the rise of rental options with ready-built factories (RBF) and built-to-suit (BTS) solutions. 

Experts warned Vietnam must be more selective with projects to move up the value chain, improve competitiveness and ensure sustainable growth. 

(Source: Zing)