Market Insights #2: Industrial Real Estate Products for Lease continues to rise

(HOUSELINK) – Grabbing their need of a humble – size factory ready to be used, industrial real estate developers are constructing and developing industrial real estate products for lease (factories, warehouses, other specialized products, etc.)

In the wave of production shifting out of China, in addition to giants and titans, more and more small and medium – sized firms are moving part of their production to Vietnam. 

HOUSELINK Data indicates that the supply of factories and warehouses for lease will increase strongly in the near future. Upon the time that the pandemic is expected to be partially controlled worldwide (2021), the supply of industrial real estate products for lease will be added to nearly 621 hectares of floor area, of which mainly in the Northern and Southern provinces. 

However, the above figure does not account for the acreage of factories that manufacturers have partially or wholly lease out. While the COVID 19 pandemic is complicated worldwide, various businesses have been severely affected, especially in the second half of 2020. In the first half of 2020, cash flows of enterprises were relatively stable thanks to the completion of contracts signed at the end of 2019 or early 2020. However, in the last six months of 2020, businesses have to face with difficulties of no new contracts, termination of orders after pandemic outbreaks.

Meanwhile, they have to pay fixed costs such as employees’ compensation, leasing costs of offices, factories, warehouses, etc. That leads to the situation that 76% businesses keep operating but cannot balance revenues – expenditures. Even 20% of businesses suspend operation and 2% dissolve, as stated by the latest survey of Private Economic Development Research Board (IV Board). While shutting down production due to the pandemic, various businesses have adopted the option to sublease existing or unused workshops, to earn extra income and partially offset fixed costs payables to industrial parks.

According to HOUSELINK’s survey, many manufacturing enterprises are leasing their factories at unbelievably cheap prices – even only from USD 1.5 – 2.5/m2/month. With a very favorable rental costs, combined with factories that were built according to the specific requirements of each industry, factories of existing businesses can be seen as the perfect substitute for newly – built factories and warehouses for lease, especially for small and medium – sized enterprises investing in Vietnam with a purpose of avoiding the clash between two titans, manufacturing light industrial products during a short time period. HOUSELINK Data reveals that in the third quarter of 2020, up to 40% of newly registered enterprises rented factories for manufacturing, with the rate of Renting new factories: Renting used factories = 1:1. That means 20% of newly registered enterprises decided to sublease existing factories of other manufacturers, up 2% compared to the figures in the second quarter of 2020.

HOUSELINK’ advice for investment owners and developers

With the data analysed in the 3rd Quarter | Vietnam Industrial Real Estate Report, it raises an inquiry about the profitability of the industrial real estate products for lease in the short and medium term. It requires investment owners and developers to conduct a thorough market survey before investing. As mentioned previously, instead of developing standard factories and warehouses for lease, investment owners should consider the development plan of specialized and high-tech factories and warehouses (ICT warehouses, cold storage, logistic centers, etc.).

*The content is included in the 3rd Quarter 2020 | Vienam Industrial Real Estate Report by HOUSELINK.

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2nd Quarter 2020 | Vienam Industrial Real Estate Report

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