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Vietnam Industrial Whitepaper

1

Q3/2020SPOTLIGHT

Savills Research

Industrial

VIETNAMINDUSTRIALWHITEPAPER

2020

REGIONAL REVIEW

Vietnam Industrial Whitepaper Vietnam Industrial Whitepaper

Population, 2019

ASEAN real GDP growth (YoY)

Source CEIC, Vinacapital, 2020Source FX Empire, 2020

Source The World Bank, 2020

Manufacturing salaries, 2020

Regional industrial production, 9M/2020

Established industrial parks, 2020 Average construction costs, 2019

World Bank ‘Ease of Doing Business’, 2019

Regional manufacturing PMI, 9M/2020

Source Focus Economics, 2020, Statista 2020

32

Source Trading Economics, FX Empire, 2020

Source Turner & Townsend, International Construction Market Survey. 2019Source Invest Asia, Industrial Park Guide 2020

252

766

431

198

968

-

200

400

600

800

1,000

1,200

Vietnam Malaysia Thailand Indonesia China

US

D

7.0

4.3

2.4

5.05.9

0.7

6.1

2.7

-3.8

-7.7

-0.3

-3.6 -3.5

1.9

7.06.3

5.06.1

6.8

3.0

8.2

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Vietnam Malaysia Thailand Indonesia Philippines Singapore China

%

2019 2020E 2021E

0

10

20

30

40

50

60

Po

ints

Vietnam Malaysia ThailandIndonesia China

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20

%

Vietnam Malaysia Thailand China

0

200

400

600

800

1,000

1,200

1,400

Vietnam(HCMC)

China (Beijing &Shanghai)

India(Bangalore)

Indonesia(Jakarta)

Malaysia (KualaLumpur)

US

D/m

2

Basic Warehouse & Factory ($/m2) Large WH/DistributionCenter ($/m2)

Hi-Tech Factory ($/m2)

0

20

40

60

80

100

120

140

160

180

Ran

kin

g

World Bank Ranking Score

374

340

86

108

323

31

0

50

100

150

200

250

300

350

400

Vietnam Malaysia Thailand Indonesia Philippines Cambodia

Nu

mb

er o

f IP

s

Source CEIC, Vinacapital, 2020

1,400

266.1

96.5 66.6 32.6

38.4

29.732.5

39.0

30.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

-

200

400

600

800

1,000

1,200

1,400

1,600

China Indonesia Vietnam Thailand Malaysia

Med

ian

age

Mill

ion

peo

ple

Axis Title

Population Median age


4


5

Effective containment of the Covid-19 pandemic and the recently ratified EU-Vietnam Free Trade Agreement (EVFTA)

has reassured Manufacturing and Logistics investors around the globe. Investor confidence in Viet Nam is increasing, even in this difficult year.

In Q3/2020, upticks in Manufacturing and Exports saw gross domestic product (GDP)

Source MPI, CEIC, Vinacapital, GSO 2020

Source CEIC, Vinacapital, 2020

Source World Bank, What Will Be the New Normal? 2020

Source World Bank, What Will Be the New Normal? 2020

GDP growth per capita

Export categories, H1/2020

Foreign demand, H1/2020

Annual GDP growth YoY

increase 2.62% year-on-year (YoY). Successful Covid containment and increased overseas demand helped accelerate recovery from the first half slowdown. Apart from China, Viet Nam will be the only major Asian economy expected to register positive growth in 2020, according to Oxford Economics.

5.42

5.98

6.686.21

6.817.08 7.02

2.7

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

0

1

2

3

4

5

6

7

8

2013 2014 2015 2016 2017 2018 2019 9M/2020

Mill

US

D

%

Annual GDP Growth YoY (%) Total registered FDI (Mill USD)

1,9072,052 2,109

2,2152,389

2,5902,715

2,955

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

1

2

3

4

5

6

7

8

2013 2014 2015 2016 2017 2018 2019 9M/2020

US

D

%

Annual GDP Growth YoY (%) GDP per Capita (USD)

24.2

19.3

2.4

-6.7-8.3 -8.4

-21.2

-26.6-30

-20

-10

0

10

20

30

Computers &parts

Rice Furniture Footwear Seafood Phones &parts

Garment Crude oil%, Y

/Y

17.4

10.3

2.3

-2.3

-8.8

-14.2

-20

-15

-10

-5

0

5

10

15

20

China US Korea Japan EU ASEAN%, y

/y

Most export categories were down year on year (YoY), apart from computers, rice and furniture. Computer exports,

up over 20% YoY were the leading performer. Over 9M/2020, overall export growth of 11% was up 34% QoQ for trade worth US$80 billion.

As most economies in the region showed negative growth, exports being up YoY not only confirms demand, but local production capacity advantaged by rapid pandemic containment. Apart from China and the USA, most overseas demand has softened.


6


7

In H1/2020 Viet Nam became the second largest exporter to the USA after China, according to the ‘2020 Global Imports Report’ by Jungle Scout. In H1/2020, over 311,000 export shipments represented approx 5.48% of the total imported by America. In 2015 Viet Nam was the 6th largest trade partner. Since then, Vietnam’s share of U.S. imports is up 64.9%.

Source Vinacapital: Macro-Indicators Vietnam by Numbers, 2020

Source Vinacapital: Macro-Indicators Vietnam by Numbers, 2020 Source JungleScout Global Imports Report, 2020

Leading export categories, 9M/2020

Leading export markets, 9M/2020

USA imports by source, H1/2020

Manufacturing salaries of US$252/month remained regionally competitive, after rising from US$237/month in 2018. By comparison, China manufacturing salaries are US$968/month; while in Malaysia they are US$766/month. While labour costs do not drive sustainable industrial growth they remain important for lower value-add industries such as textiles and furniture.

In January 2020, the minimum wage increased by 5.7% YoY per Government Decree. Salaries are rising faster than other Asian countries but remain low in comparison. The minimum wage increase in 2020 was higher than the 5.3% in 2019 but lower than those in 2017 and 2018.

Viet Nam has one of the most competitive tax regimes in Asia. Companies can benefit from corporate income tax (CIT) incentives, fixed asset import duty exemptions; and exemptions of land rental fees. Notable incentives include 20% profit tax exempted for the first two years, followed by a -50% reduction for the next four.

Furthermore, preferential CIT incentives are offered to government-prioritized industries, such as Industry 4.0, or those supporting hi-tech manufacturing; also projects in special economic zones (SEZ) or socio-economically challenged regions; and large scale projects that meet Government led minimum requirements for investment capital, revenue, and headcount. Projects qualifying for the above can expect CIT at 10% for 15 years, four years of CIT exemption; and a -50% tax reduction for the next nine years.

Viet Nam is also one of the most cost-efficient markets for industrial building costs, according to Turner & Townsend’s 2019 Construction Costs Survey. In Ho Chi Minh City the average construction cost of basic factory and warehousing is US$352/m2; while factory units and large distribution centers cost US$412/m2; and hi-tech factories have construction costs of US$618/m2.

Source Grant Thornton, 2020

VND4,180,000 (US$180)

VND3,710,000 (US$159)

VND3,250,000 (US$140)

VND2,920,000 (US$125)

VND4,420,000 (US$190)

VND3,920,000 (US$169)

VND3,430,000 (US$148)

VND3,070,000 (US$132)

VND240,000 (US$10)

VND210,000 (US$9)

VND180,000 (US$8)

VND150,000 (US$6)

I

II

III

IV

Viet Nam minimum wages, 2020

Region

2019 monthly minimum wage

2020 monthly minimum wage

Wage increase

18%

16%

11%

9%6%

4%

3%

3%2%

28%

18%

16%

11%

9%6%

4%

3%

3%2%

28%

Mobiles & spare parts PCs & electronicsTextiles & garments Machinery & equipmentFootwear Wood & wood productsTransportation vehicles FisheyIron & steel Others

23%

16%

13%10%

8%

7%

3%

2%

2%

16% U.S.

China

EU

ASEAN

Japan

South Korea

Hong Kong

India

UAE

Others

23%

16%

13%10%

8%

7%

3%

2%

2%

16%

U.S. China

EU ASEAN

Japan South Korea

Hong Kong India

UAE Others


8


9

The EVFTA came into effect on 1 August 2020 after 10 years of negotiation. The

increased cooperation between the EU and Viet Nam will boost Manufacturing recovery from the pandemic induced slowdown. The EVFTA is expected to increase national GDP by 4.6% with EU bound exports up 42.7% by 2025. The EU Commission recently forecast EU GDP to increase by US$29.5 billion to 2035.

The EVFTA will add momentum to the transition from low-skilled and more labour-intensive industries to higher-value industries. By

enabling the latest production technologies and increasing workforce training, the government is actively easing concerns of viability, labour shortages, and rising costs. Moving to a more transparent business environment will help mitigate investor concerns and improve overall quality.

The EVFTA will also enable economic development to continue moving away from exporting low-value add products and inputs, to higher-value products such as hi-tech, electronics, vehicles and medical devices. Global trade networks will improve access to a more diverse range of sourcing partners,

allowing cheaper imports of inputs or intermediate goods, which in turn will boost export competitiveness. As partnerships with foreign companies increase, Viet Nam will further benefit from specialist manufacturing knowledge and technology transfer.

As Viet Nam opens up to EU manufacturers of food & beverage, fertilizers, ceramics and building materials, tariff elimination will also benefit EU exporters, including those manufacturing electronics, smartphones; textiles, apparel, coffee, and agricultural products.

To 9M/2020 total committed FDI was US$21.2 billion, with 1,947 new projects registering capital investments of US$10.36 billion. Bac Lieu gaining 18.86% of FDI was

attributed to a US$4 billion LNG Power Plant project from Singapore. The other leading recipients were HCMC with 15.34 percent, Ha Noi claimed 13.78%, and Ba Ria – Vung Tau gained 10.13 percent. Singaporean investments of US$6.76 billion accounted for 31.91% of total registered FDI, followed by Korea with US$3.16 billion, or 14.94%; and China with US$1.87 billion, or 8.85 percent.

The EVFTA Takes Effect

Foreign Direct Investment (FDI), 9M/2020

Viet Nam has preferential trading agreements with 52 countries and 13 free trade agreements (FTAs), 11 of which are in effect with the balance either under negotiation, or yet to come into effect.

Source Ministry of Planning & Investment (MOPI), 2020

Total registered FDI, 9M/2020

Manufacturing and Processing gained registered FDI of US$9.88 billion from 614 new projects, accounting for 46.6% of the total, down from the US$18,089 billion in 9M/2019.

Furthermore, in H1/2020 industrial parks (IPs) and economic zones (EZs) directly attracted approximately 335 FDI projects with newly registered capital of approximately US$6 billion.

In 9M/2020, newly registered manufacturing FDI by region saw the North of Viet Nam gain US$2.88 billion or over 61.13%, followed by the South with US$1.60 billion or 34.05%, while the Central region gained 4.82% for US$227 million.

46.61

20.60

15.01

6.07

11.70454663

Manufacturing &processing

Energy distribution

Real estate activities

Retail, wholesale &repair

Other

Manufacturing & Processing FDI, 9M/2020

New projects

614Newly registered capital (US$ millions)

4713Existing projects

487Added capital on existing projects (US$ millions)

3646Projects with capital contribution

1,165Contribution capital(US$ millions)

1525Total FDI(US$ millions)

9884


10


11

To 9M/2020, by province, Ha Nam attracted most newly registered manufacturing FDI of US$477,720,043 representing 10.14% of the total. Hai Phong followed with US$438,844,053 for 9.31% while Ninh Province claimed US$348,405,000 or 7.39 percent.Source Ministry of Planning & Investment (MOPI), 2020

Source Ministry of Planning & Investment (MOPI), 2020

Source IHM Markit, 2020

Newly registered manufacturing FDI by province, 9M/2020

Newly registered manufacturing FDI by region, 9M/2020

Manufacturing PMI, 9M/2020

IIP, Q3/2020In September manufacturing growth again surpassed the 50-point threshold after concerns around the second Covid-19 outbreak eased. Output increased at its highest rate in 14 months as new orders increased, business sentiment improved, and job losses eased. This was the first time business conditions had improved in three months. Industrial production increased 3.8% YoY in September 2020 after dropping -0.6% in August. The highest growth in output since June was supported by rapid containment of the second Covid-19 outbreak. Over 9M/2020 output was up 2.4% YoY.

In August, Manufacturing was up 4.6% against -0.1% in July; electricity supply was up 5.5% against -0.7%, while water supply and waste treatment was up 5.3% in August compared to 2.2% in July.

61.13

34.05

4.82

North

South

Central

$-

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

$900,000,000

$1,000,000,000

0

5

10

15

20

25

HaNam

HaiPhong

TayNinh

BinhDuong

BacNinh

BacGiang

QuangNinh

BRVT ThanhHoa

DongNai

PhuTho

Ha Noi LongAn

Other

Mill

US

D

FD

I %

Manufacturing FDI % Manufacturing FDI (US$ millions)

50.5 50 51 50.8 51.849

41.9

32.7

42.7

51.1

47.645.7

52.2

0

10

20

30

40

50

60

Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20

Po

ints

-15

-10

-5

0

5

10

15

%

Source Trading Economics, 2020


12


13

In H1/2020 the Japanese Government allocated US$2.2 billion of its pandemic-stimulus package for manufacturers wanting to shift production out of China after Covid-19 disrupted supply chains between the two trading partners. According to the Japan External Trade Organization (JETRO), 15 of 30 Japanese enterprises diversifying supply chains to ASEAN selected Viet Nam.

Covid-19 Impacts & Implications

ACCELERATING CHINA RELOCATIONS

Pandemic effects and US tariffs will see more multinational manufacturers based in China relocating to Viet Nam. Pandemic effects will not see manufacturing in China cease, but supply chains being severely affected by Covid-19 during the first outbreak has highlighted the need for diversifying production across multiple bases.

Viet Nam has become a preferred alternative manufacturing base for its facilities and labour costs. Multinationals producing high-value add products such as

electronics, under increased pressure to cut costs will see more production shifts to Vietnam and SE Asia. Pandemic effects will drive FDI companies to establish production facilities in Viet Nam and further develop local supply chains.

Historically wage inflation tends to increase after a global crisis abates. Labour costs in China are already three times higher than in Viet Nam and will prompt multinational manufacturers to consider relocating to more cost-effective SE Asian markets.

During the first outbreak, several multinational manufacturers announced

expansions or planned relocations to Viet Nam, such as Apple Computers suppliers Pegatron, and Foxconn from Taiwan; Sharp, Nintendo, and Komatsu from Japan; and Lenovo from Hong Kong.

The 15 enterprises comprise nine SME’s and six large scale projects. The majority produce medical equipment, semiconductors, mobile phones and parts; and air conditioners. JETRO confirmed these moves were encouraged to improve supply chain efficiencies, plug gaps caused by pandemic effects, while strengthening economic and industrial ties with ASEAN.

Japanese manufacturers relocating to, or expanding in Viet Nam, 2020

Viet Nam has been recognised for its decisive and rapid containment of the covid-19 pandemic, and for avoiding a protracted slowdown.

The growing middle class, dynamic private sector and stable business environment has Viet Nam positioned well for post-pandemic recovery. Taking early action allowed shorter lock-downs and manufacturers able to restart production earlier other Asian economies. In the long-term, bilateral and multilateral trade agreements will result in improved market access, while facilitating sector growth through technology and knowledge transfer from higher-value industries.

No. Company Scale Industry

1. Shin-Etsu Chemicals Co. Ltd. Large scale Chemical products

2. Hoya Lens Co. Ltd. Large scale Glass products

3. Matsuoka Corporation Large scale Garment production

4. Meiko Electric Ltd. Large scale Electronics

5. Yokoo Vietnam Large scale Metal products

6. Nikkiso Co. Ltd. Large scale Aerospace components

7. Akiba Coating & Technology SME Metal coating

8. Inoue Iron Works Co. Ltd. SME Metal products

9. Able Garment Co. Ltd. SME Garment production

10. Showa Company Limited SME Rubber products

11. Techno Global SME Electronics

12. Hashimoto Co. Ltd. SME Plastic products

13. Fujikin Company Limited SME Precision components

14. Plus Co. Ltd. SME Machinery & equipment

15. Pronics Co. Ltd. SME Machinery & equipment

14 15

SUPPLY GAP

To 6M/2020 there were 374 established IZs nationwide with a total area over 114,000 ha, according to the Economic Zone Management Department in the Ministry of Planning and Investment (MOPI), Of these, 280 are in operation and extend over 77,000 ha. Seventy-five sites extending over approximately 29,000 ha are under site clearance. In H1/2020, IZ’s had an average occupancy of 73.7 percent. There are a further 17 coastal economic zones (CEZs), supplying 845,000 ha. In H1/2020 nearly US$6 billion of FDI went into IPs, processing zones and EZs.

Average occupancy increasing significantly since 2018 has resulted in a growing supply gap and a clear need for additional development in key industrial provinces. Average occupancies in 2020 reached 88% in HCMC, 99% in Binh Duong, 94% in Dong Nai, 84%, in Long An, and 79% in Ba Ria-Vung Tau. In northern areas average occupancies were 90% in Ha Noi, 95% in Bac Ninh, 89% in Hung Yen, 82% in Hai Duong, and 73% in Hai Phong.

The expected influx of relocations out of China in 2021 and 2022 will require more supply able to accommodate higher value manufacturing investments. Dong Nai is planning eight additional IZs.

Long Thanh district’s Peoples Committee chairman Mr Vo Tan Duc announced plans to build four new IZs in Long Thanh. Phuoc Binh commune will have two more IZs up to 900 ha each for additional leasing areas of about 500 ha. Tan Hiep and Binh An communes will each develop one IP.

The largest private conglomerate in Viet Nam, Vingroup, plans to invest over US$400 million in subsidiary Vinhomes IZ. . Its first two projects will be in Hai Phong, the 200 ha Nam Trang Cat Industrial Park and the 319 ha Thuy Nguyen IP. Both projects are expected to open in 2021.

In Q4/2021, the new 238 ha Nam Son Hap Linh IP by Kinh Bac City Holdings Company will bring much needed supply to Bac Ninh Province. Over the same quarter TNI Holdings Vietnam will open the 177 ha Song Lo 1 IP in Vinh Phuc Province.

In Long An Province in the south, TIZCO JSC and Vietnam Innovation Parks Group JSC (VNIP), will enter the 1,800 ha Viet Phat IP in 2021.

DEMAND PUSHES PRICES

Sudden growth in lease enquires for land, factory and warehousing has resulted in price escalations in IPs near major cities. In the South, IP lease prices in 2020 reached US$147/m2 in HCMC, US$107/

Industrial land, 9M2020

RBF and warehouse developers, 9M/2020

Vietnam Industrial WhitepaperVietnam Industrial Whitepaper

Developer Nationality Total area (ha) Sites Province(s)

BW Industrial Development JSC US/Vietnam 500 21

HCMC, Binh Duong, Dong Nai, Bac Ninh, Hai Duong, Hai Phong

KTG Industrial Development JSC Vietnam 120 8 Dong Nai, Hanoi, Bac

Ninh

Kizuna Vietnam 24 4 Long An

Daiwahouse Vietnam Co., Ltd. Japan 23.6 3 Dong Nai

Gaw NP Industrial JSC Hong Kong 13 1 Thai Nguyen

JSC Vietnam 18 1 Dong Nai

Boustead Projects Land (Vietnam) Co., Ltd. Singapore 18.7 1 Dong Nai

IP Vietnam Vietnam 10 2 Dong Nai

GT-Industrial Vietnam 7.3 1 Dong Nai

Mapletree Singapore 75 1 Binh Duong

Logos Property Australia US$350 million platform

GLP (SLP Logistics) Hong Kong US1.5 billion fund

m2 in, Binh Duong, US$98% in Dong Nai, US$123/m2 in Long An, and US$65/m2 in Ba Ria-Vung Tau. In the North, prices in Hanoi reached US$129/m2, Bac Ninh was US$95/m2, Hung Yen up to US$83/m2, Hai Duong was US$76/m2, and Hai Phong moved up to US$96/m2.

RENTAL DEVELOPERS INCREASING

Ready-builds remain under high demand with suppliers reluctant to make long-term land lease commitments or rely on short term contracts. This has resulted in rental developers racing to secure land for expansion. BW Industrial Development JSC (BWID) with over 500 ha in 10 sites across eight key cities, up from 209 ha in 1H/2018,

continue their expansion as Viet Nam’s biggest Industrial developer of ready-built factories (RBF), warehousing and built-to-suit (BTS) solutions.

Global logistics and warehouse developers have entered despite the ongoing pandemic. Logos Property from Australia entered with a US$350 million logistics development joint venture (JV). GLP, the largest warehouse developer in Asia, is planning a 1.5 billion USD venture with Viet Nam’s SEA Logistic Partners (SLP). South Korean firm Mirae Asset Daewoo Co and Naver Corporation jointly invested $37 million into warehousing in the LogisValley logistics hub in Bac Ninh Province.


16


17


16

The North Key Economic Zone (NKEZ) comprises Ha Noi; and Bac Ninh, Hung Yen, Vinh Phuc, Hai Duong, Hai Phong, and Quang Ninh Provinces. The EZ has:

•Well-developed transportation network links e.g. Hanoi-Hai Phong Expressway;

•Prime industrial land in between new infrastructure development;

•Proximity and investment from China;

•A focus to heavy industry, electronics and large scale projects.

North Key Economic Zone (NKEZ)

No. Subject Examples

1.Key master IP developers

Vietnam Singapore Industrial Park (VSIP), Viglacera, Kinh Bach City Corporation, TNI Holdings Limited, and Deep C Industrial Zones.

2.Factory & warehouse developers

BW Industrial Development JSC (BWID), KTG Industrial JSC, Gaw NP Industrial, An Phat, Linfox, FM Logistics, and Logisvalley.

3.Notable occupiers

Samsung, LG Electronics, Foxconn, Canon, Hyundai, Honda, Vinfast.


17

NKEZ IPs

Province Total area (ha)

Leasable area (ha) Projects Occupancy Lease price

($/m2)Lease price YoY growth

Occupancy YoY growth

Bac Ninh 5,460 3,724 14 95% 95 9.20% 11.76%

Vinh Phuc 1,655 1,189 7 83% 65 4.84% 3.75%

Hanoi 3,472 1,603 11 90% 129 13.16% 1.12%

Hai Duong 1,694 1,177 10 82% 76 15.15% 7.89%

Hai Phong 4,526 3,183 11 73% 96 3.23% 1.13%

Hung Yen 1,704 1,225 8 89% 83 6.41% 3.49%

NKEZ supply & performance, H1/2020


18 19


18

2020

3 Ring Road 3

2A Metro Line 2A

2021

1 Tam Trinh Expansion

1 Ring Road 1

3 Tay Thang long Street

2022

2 Ring Road 2

3 Metro Line 3

2 Road connecting Thuong Cat bridge to Highway 32

7 Vinh Tuy Bridge (Phase 2)

The main IP tenant industries include:

Electronics, computers and optical products;

Fabricated metal products;

Rubber & plastics products;

Wholesale & retail trade (excluding automotive);

Automotive & automotive components;

Food products;

Electrical equipment;

Chemicals & related products.

NKEZ Tenant Mix

NKEZ supply & performance, H1/2020Infrastructure

Key NKEZ data, H1/2020

Total IParea (ha)

18,511 haLeasable IParea (ha)

12,101 haAverageoccupancy (%)

85%

Land lease price ranges (US$/m2)

US$55 – 260/m2/full term

Average land lease price (US$/m2)

US$91/m2/entire term

Average factory rental (US$/m2/month)

US$4.1/m2/mth

-

40

80

120

160

-

2,000

4,000

Bac Ninh Vinh Phuc Ha Noi Hai Duong Hai Phong Hung Yen

ha

US

$/m

2/term

Occupied (ha) Vacant area (ha) Rent


2025

1 Noi Bai Airport Expansion

4 Ring Road 4

2.5 Ring Road 2.5

2 Metro Line 2

2030 Onwward

1 Thuong Cat Bridge

2 Tu Lien Bridge

3 Cau Duong 2 Bridge

4 Giang Bien Bridge

5 Tran Hung Dao Bridge

6 Hong Ha Bridge

No. Company Nationality Industry Investment capital (US$) Industrial park Province

1. Wistron Corporation Electronics 273 mill Dong Van 3 Ha Nam

2. Texhong Knitting Co. Ltd. Textiles & apparel 214 mill Hai Ha Quang Ninh

3. Universal Scientific Technology

Machinery & equipment 200 mill Hai Phong Dinh Vu Cat Hai

4. Intco Medical Vietnam Co. Ltd. Medical equipment 70 mill Bim Son Thanh Hoa

5. Wistron Neweb Electronics 60 mill Dong Van 3 Ha Nam

6. Global Sun Trading Co. Ltd. Electrical equipment 50 mill Dong Mai Quang Ninh

7. Powerway Alloy Materials JSC Metal products 50 mill Hoa Phu Bac Giang

8. CE Link Vietnam Co. Ltd. Electronic components 49 mill Van Trung Bac Giang

9. Iljin Diamond Co., Ltd. Metal products 20 mill Dong Van 4 Ha Nam

10. Chee Yuen Industrial Co. Ltd. Plastic products 19 mill An Duong Hai Phong

Largest NKEZ manufacturing investments, 9M/2020

The South Key Economic Zone (SKEZ) extends over Ho Chi Minh City, and Binh Duong, Dong Nai, Long An, Tay Ninh, and Ba Ria-Vung Tau Provinces. SKEZ advantages include:

• The economic center of Viet Nam, HCMC

• Cat Lai Port within HCM city limits.

• Educational institutions driving skilled labour supply

• Diversified sector investments.

South Key Economic Zone (SKEZ)

No. Subject Examples

1.Key master IP developers

Vietnam Singapore Industrial Park (VSIP), Sonadezi, Saigon VRG, Tin Nghia Corporation, Idico, ITA

2.Factory & warehouse developers

BW Industrial Development JSC, KTG Industrial JSC, Boustead Projects, Kizuna JSC, Daiwahouse Co. Ltd., JSC, GT-Industrial, IP Vietnam

3.Notable occupiers

Intel, Jabil, P&G, Unilever, Coca-Cola, CJ Group, Kumho Tires


2120

SKEZ IP mapping

Province Total area (ha)

Leasable area (ha) Projects Occupancy Lease price

($/m2)Lease price YoY growth

Occupancy YoY growth

Dong Nai 10,066 6,742 32 94% 98 6.52% 1.08%

Binh Duong 10,159 6,379 31 99% 107 4.90% 2.06%

BRVT 9,327 5,711 12 79% 65 18.18% 12.86%

Long An 5,837 3,641 22 84% 123 7.89% 1.20%

HCMC 4,703 2,720 22 88% 147 0% 1.15%

Tay Ninh 3,390 2,619 6 66% 83 N/A N/A

SKEZ supply & performance, H1/2020

2020

7 Binh Khanh Bridge

8 Phuoc Khanh Bridge

10 Binh Tien Bridge

11 Vam Sat 2 Bridge

14 Ven song Saigon Street

2021

23 Nguyen Huu Canh Street Upgrades

24 Nguyen Thi Thap Street Upgrades

5 Thu Thiem 2

12 Metro Line 1

2022

2 HCMC - Thu Dau Mot - Chon Thanh Highway

6 Thu Thiem 4

13 Intersection Nguyen Van Linh - Nguyen Huu Tho

The main IP tenant industries include:

Fabricated metal products;

Food & beverage;

Wholesale & retail (excluding automotive);

Textiles & apparel;

Rubber & plastic products;

Chemicals & chemical products;

Paper products

Wood & wooden products

SKEZ Tenant Mix

SKEZ supply & performance, H1/2020Infrastructure

Key SKEZ data, H1/2020

18 Bien Hoa - Vung Tau Highway

22 Ring Road 2

2023

4 Ring Road 3

15 Xa Lo Hanoi Highway Expansion

16 Nhon Trach Bridge

1 Ben Luc - Long Thanh Highway

2024

3 Ring Road 4

9 Cat Lai Bridge

25 Vam Cai Sut Bridge

2025

19 HCMC - Moc Bai Highway

20 Tan Son Nhat Airport Expansion

Total IParea (ha)

43,482 haLeasable IParea (ha)

27,812 haAverageoccupancy (%)

85%

Land lease price ranges (US$/m2)

US$60–300/m2/full term

Average land lease price (US$/m2)

US$104/m2/full term

Average factory rental (US$/m2/month)

US$4.4/m2/mth

-

40

80

120

160

0

2000

4000

6000

8000

Dong Nai Binh Duong BRVT Long An HCMC Tay Ninh

ha

US

$/m

2/term

Occupied (ha) Vacant area (ha) Rent


2322

No. Company Nationality Industry Investment capital (US$) Industrial park Province

1. Jinyu Tire Co., Ltd. Rubber products 300 mill Phuoc Dong Tay Ninh

2. Furukawa Automotive Systems Inc.

Electrical equipment 49 mill Binh Minh Vinh Long

3. Prime Glorious Vietnam Co., Ltd. Textiles & apparel 35 mill Bau Xeo Dong Nai

4. Lap Thinh Co. Ltd. Paper products 33 mill Nam Tan Uyen Expansion Binh Duong

5. Khgears International Machinery & equipment 30 mill Chau Duc Ba Ria-Vung

Tau

6. Sung Shin Tech Vina Plastic products 30 mill My Phuoc 3 Binh Duong

7. Samson Industries Co. Ltd. Textiles & apparel 27 mill N/A Binh Duong

8. CP Vietnam Co. Ltd. Agricultural products 22 mill Binh Minh Vinh Long

9. Fu Lian (HK) Group Limited Textiles & apparel 20 mill Moc Bai Tay Ninh

10. Ever Giant International Limited Metal products 20 mill Bau Bang Binh Duong

Largest SKEZ manufacturing investments, 9M/2020


24


25

ENSURING FUTURE SUPPLY

The Department of Economic Zone Management (DEZM) announced a further 561 IZs over a combined 201,000 ha are approved for master planning integration. These will be in addition to the 374 established IZs. Of these new sites, the 259 utilizing 86,500ha are yet to be established and represent 43.1% of the total new area.

According to Deputy Director, Mr. Tran Quoc Trung, the DEZM must first perfect legal frameworks for IZ development, strengthen management and innovation, and enhance master planning efficiency. The plan is essentially complementing more traditional IZs with more niche products such as ecological industrial parks, supporting IZs, associated IZs, and combined IZ and urban area services models.

IZ infrastructure will also need to continue being improved. Policies, mechanisms, and management are being refined to improve efficiencies. These new projects and initiatives will be essential for accommodating the new wave of investments and relocations. Location of new

projects is important as most manufacturing and logistics demand still rely on key industrial province or tier 1 locations.

Projects in tier 2 regions will try to attract foreign investment with more competitive lease prices and vacant land supply, but more investment into infrastructure and transport network links will be vital if these emerging provinces are to develop.

FOSTERING INDUSTRIAL CLUSTERS

“Clustering seems to be a missing piece of Vietnam’s industrial map puzzle and it is expected to become more popular as the Vietnamese economy moves up the value chain.” – Troy Griffiths.

Clustering is acknowledged globally to create advantages for sector specific industries. If administered correctly, it can provide opportunities to Viet Nam’s tier 2 cities and provinces to compete effectively in terms of attracting both high-value added projects and supporting industries. Consolidating projects by industry presents

more opportunities to occupiers, such as building production networks and value chains, rather than a disparate spread of industries throughout the country. Furthermore, many of Viet Nam’s foreign manufacturers would be familiar with industrial clustering as these are established in many of the countries they are moving from.

Currently, the country’s industrial property market depends heavily on operational variables such infrastructure and distance to source and destination markets. Favorable regions exist for certain industries, such as Bac Ninh for electronics or Hai Phong for automotive projects. Effectively establishing the downstream of sector specific industries to achieve operational efficiency will require Government commitment and guidance on strategic planning, policy, mechanisms, and preferential incentives.

To date, Ha Noi has set a target of having 30 new industrial clusters to be located in urban areas with priority given to clean and hi-tech projects

Outlook Logistics cost/GDP, 2019

Source Viet Nam Logistics Association, 2019

14

811

18

25

0

5

10

15

20

25

30

Global Singapore Japan China Viet Nam

%

INFRASTRUCTURE COMPETITIVENESS

Intermodal transport network links will require ongoing investment, if Viet Nam is to attract higher value manufacturing and logistic projects. As logistics costs remain amongst the highest in the region, this factor is particularly important near tier 1 and tier 2 provinces, IZs, EZs, and ports.

The quality throughput all transport infrastructure in Viet Nam remains lower than regional peers, according to Fiingroup’s Viet Nam Logistics Report 2019. Although transportation infrastructure is expanding rapidly, development falls short of national economic and social growth. Rapid growth in urban population and freight transportation are the primary drivers of infrastructure needs. Furthermore, rising demand for intercity passenger and freight transport has prompted upgrades to national expressways and railways.

Road transportation service potential is not being reached despite having CAGR of approx. 10.6% from 2008 to 2018. The growing demand of cargo transportation is not being matched by the required speed of upgrades to the national roads network. The Government has prioritized network refinements and augmentation to improve transport quality, reduce congestion and limit route overburdening.

World Bank logistics performance index, 2018

Transport infrastructure competitiveness, 2018

Freight transportation volume, H1/2018

Road freight volume, 2008 - 2018

Source The World Bank, 2018

Source Fiingroup, Viet Nam Logistics Report, 2019



0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

0

20

40

60

80

Singapore Thailand China Vietnam Malaysia Indonesia Phill ippines

Sc

ore

Ra

nk

ing

Logistics Performance Index (LPI), 2018 World Bank LPI RankingLogistics Performance Index (LPI), 2018 Score

3.83.5

3.2

3.9 4.04.2 4.1

3.4

4.1

4.7

0.00.51.01.5

2.02.53.03.54.04.55.0

Overallinfrastructure

Roads Rai lroad Ports Air transport

Po

ints

Transport infrastructure competitiveness 2018 Viet Nam Avg.Transport infrastructure competitiveness 2018 ASEAN Avg.

77.18

17.67

4.770.36 0.02

Road

Waterways

Ocean

Rail

Air

456514

587654

718 764822 874

9911118

1254

0

200

400

600

800

1000

1200

1400

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

CA

GR

: 10

.6%

mn tonnes


26


27

LABOUR: QUALITY OVER QUANTITY

Manufacturing industries working to tight margins, such as textiles or furniture, will eventually struggle with rising lease prices, labour costs and supply. As Viet Nam turns its focus to attracting higher-value add industries such as high-tech or supporting high-tech manufacturing, these companies may be forced to relocate elsewhere in SE Asia. Competing for labour supply against these industries will be challenging in the key industrial provinces. However, as the transition to higher value industries continues, focus will switch from labour supply to quality of labour.

As countries and industries considering Viet Nam evolve, demand for more skilled labour and education will increase. To effectively accommodate higher-value projects it is essential to continue investing in education, notably IT, mathematics, and the sciences. Although labour costs in Viet Nam are one third of those in China, productivity is just one third of China.

However, this issue has been recognized with the Government committing to create a national

skills development plan as part of FDI Strategic Recommendations 2020 to 2030.

POST PANDEMIC OPPORTUNITIES

The highly effective pandemic response to both outbreaks, a robust and growing middle class, stable business environment, labour force, infrastructure spending, corporate income tax incentives, and recent FTAs, are all contributory factors to claiming post pandemic opportunities. The persisting pandemic is even expected to accelerate relocations of multinational manufacturers out of China. The most notable are Apple Computers, Pegatron, and Foxconn announcing plans to relocate to, or expand production in Viet Nam.

DELAYED TRANSACTIONS, FUTURE PROSPERITY

“Amid travel restrictions industrial property sector activity in the first nine months revolves around companies in Vietnam expanding or relocating their production. Q3/2020 has also seen some key M&A deals, and

the emergence of distressed assets and facilities for sale & leaseback. Regarding leasing, strong demand exists for ready-builds as suppliers are more conservative to make long-term land lease commitments or are relying on short term contracts with their customers.” – John Campbell.

Most lease transactions in H1/2020 derived from ongoing projects or discussions initiated in 2019. Many new leases came from established businesses looking to expand. International travel restrictions have curtailed new ‘market entry’ enquiries or postponed site inspections by key international investors. All of which have driven executed leases down.

Sector reliance on supply chains migrating out of China is increasingly evident with many landlords anticipating a busy year once restrictions are lifted.

“Hope is important because it can make the present moment less difficult to bear. If we believe that tomorrow will be better, we can bear a hardship today.”

- Thich Nhat Hanh

“A China + 1 model may be increasingly pursued by manufacturers, which would result in greater demand for Vietnam industrial space, as corporations seek to mitigate risk and diversify locations. Industrial continues to be the ‘poster child’ for real estate, with mounting enquiries and heightened capital market activity.”

Troy Griffiths - Deputy Managing Director, Savills Vietnam

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