PRESS RELEASE: SAVILLS VIETNAM REPORT ON INDUSTRIAL SECTOR H1/2016
Rising labour cost in China and opportunity for Viet Nam
Chinese labour costs have risen substantially in recent years, pressuring labour-intensive industries such as garment, textile and even processing and manufacturing. China is facing an outbound wave of foreign companies seeking better factors of production, especially cost of labour.
As a “next-door” economy with convenient waterway and road connectivity to China, Viet Nam stands out as an ideal recipient of this wave. Primary supporting factors include ASEAN membership, signed FTAs with large export markets and labour costs less than half that of China.
Momentum from new trade agreements
There was a surge of FDI at the conclusion of TPP and EVFTA negotiations at the end of 2015.
In H1 2016, 1,145 new projects registered capital of US$7.5 billion, increasing 95% year-on-year (YoY).
The processing and manufacturing sector received the most attention with a 71% share of registered FDI.
Geographically, Hai Phong and Ha Noi were the best-performers with a cumulatively registered FDI of approximately 30%, followed by Binh Duong with 9% and Dong Nai with 8 percent.
East Asian giant manufacturers were still dominant
The most prominent investments were from Korean high-tech manufacturers, such as LG’s US$1.5 billion OLED screen factory in Hai Phong. Korean investments accounted for 35% of total registered FDI with US$4 billion.
Japan and Singapore followed with US$1.2 and US$1.1 billion of registered FDI, equivalent to 11% and 10% of inflows, respectively.
National Supply
In H1 2016, six newly operational IPs supplied approximately 700 ha of leasable area, bringing the total to 218 industrial parks with an area of 59,700 ha and a leasable area of approximately 41,000 ha.
The total leased area in H1 2016 was 28,500 ha, increasing 5% since year-end 2015. Despite supply growth, occupancy increased to 70% due to the new wave of FDI inflows, 3 ppts higher than the beginning of the year.
Southern Viet Nam
Although having international air and seaports, most HCMC IPs are located in semi rural districts. Focus has steadily shifted toward high-tech industries, while labour and land intensive industries are encouraged less.
IPs in HCMC have the most convenient locations and therefore the highest rents amongst the southern provinces. However, as a result of higher labour costs, newly developed IPs are pressed to increase occupancy.
The processing and manufacturing sector received only US$66 million of registered FDI in H1 2016, equivalent to 13% of the total inflow to HCMC.
Surrounding provinces
With good proximity to HCMC’s ports and large land banks, Binh Duong and Dong Nai have consolidated their positions as industrial centres of southern Viet Nam with each province attracting approximately US$1 billion to the processing and manufacturing sector in H1 2016.
While previously an IP development laggard, Long An has had increased interest with 16 operating IPs supplying approximately 3,000 ha of leasable space. In H1 2016, Long An received approximately US$350 million of registered FDI, the highest among Mekong provinces. Nevertheless, as rents are relatively high, the average IP occupancy in Long An was low at less than 60 percent.
Northern Viet Nam
Hai Phong
By the advantage of international seaports, Hai Phong was a pioneer in developing IPs in the northern region. Nomura and Nam Cau Kien are the typical successful IPs with occupancy rates from 90-100%. However, the average rent in Hai Phong’s IPs is relatively high due to lack of incentives for IPs developers. This dampened the average occupancy rate of Hai Phong’s IPs.
The recent improvement in doing-business environment has caused significant effect. In H1 2016, Hai Phong was the best performer in attracting FDI with US$ 1.8 billions registered capital.
Trang Due was the most appealing IP to investors by comprehensively completed infrastructure. In H1 2016, this IP was the destination of large investments including LG’s US$ 1.5 billion and SL Electronics’ US$ 425 million manufacturing projects.
Ha Noi and surroundings
While Ha Noi and the surrounding provinces are strongly supported by Noi Bai International Airport, there are no nearby seaports and air transport is not feasible for many industries. Attractive incentives have been mobilised that target higher-value product industries. The results have been clear with IP occupancy in the region typically exceeding 70 percent. Although successful, this region could become more competitive through increased investment in highway systems connecting to China and Hai Phong’s seaports.
In H1 2016, other northern provinces remained attractive with Bac Ninh’s IPs receiving US$563 million of registered FDI and Vinh Phuc’s receiving US$563 million.
Ha Noi recently focuses more on attracting high-tech projects such as Samsung’s US$ 300 million R&D project. IPs are less attractive due to average rents near double that of neighbouring competitors and relatively higher labour costs.