Despite a new outbreak of COVID-19 in Viet Nam, the industrial property sector saw positive signs with new industrial zones established and key industrial projects beginning operations, according to Savills Vietnam.
The fourth outbreak of COVID-19 that started in late April has forced some southern provinces and cities to suspend flights to and from HCM City to apply strict social distancing measures under the Government's Directive 16.
“The social distancing and domestic travel restrictions continue to pose difficulties for developers trying to lease their land, factories, and warehouses, as investors and potential occupiers cannot undertake site visits in other provinces,” said John Campbell, Manager of Savills Vietnam’s Industrial Services.
“However, the rollout of the vaccinations and promises of a vaccine passport programme is instilling confidence into landlords and investors alike. Given the obstacles facing this segment, the industrial sector continues its fight during the fourth wave of the pandemic.”
Meanwhile, this year has witnessed a number of new mergers and acquisitions (M&A) and improvements in industrial land supply. The largest manufacturing projects in the first half of 2021 came from Hong Kong (China) and Singaporean investors that targeted northern Quang Ninh and Bac Giang provinces, according to Savills Vietnam.
Viet Nam’s foreign direct investment (FDI) inflows rose by 3.8 per cent year-on-year to US$10.5 billion in the first seven months of 2021, with processing and manufacturing taking the lead, raking in $7.9 billion, or 47.2 per cent of the total, data from the Ministry of Planning and Investment showed. Real estate came third with registered FDI of $1.16 billion.
He also noted that various new M&A deals have been inked this year. Boustead Projects Co Ltd, for example, signed an options agreement for the proposed acquisition of a 49 per cent stake in KTG & Boustead Industrial Logistics JSC.
If successful, the partnership will consist of 13 real estate seed assets amounting to $141 million in gross asset value covering about 840,000sq.m of land and about 550,000sq.m of gross leasable area, he added.
ESR Cayman Limited, the largest Asia-Pacific-focused logistics real estate platform, and BW Industrial Development JSC (BW), the leading logistics and industrial real estate developer and operator in Viet Nam, have entered into a joint venture to develop 240,000sq.m in My Phuoc 4 Industrial Park near HCM City.
Regarding new projects, Logos Property’s 81,000sq.m project in the Viet Nam-Singapore Industrial Park (VSIP) Bac Ninh 1 is expected to begin operation in the fourth quarter of 2021.
A new player in the market, KCN Vietnam Group JSC, acquired a significant 250-hectare land plot with an investment of US$300 million, aiming to develop premium, sustainable factories and warehouses for rent in Viet Nam with a national portfolio spanning across localities of Bac Giang, Hai Phong, Hai Duong, Dong Nai and Long An.
In the domestic market, a developing trend has emerged of investors actively seeking industrial properties for sale-leaseback, according to Savills Vietnam.
“Amid travel restrictions, the industrial property sector activity in 2020 and 2021 to date has revolved around companies in Viet Nam expanding or relocating their production. Last year has also seen some key deals and the emergence of distressed assets and facilities for sale and leaseback,” said Campbell.
Sale-leaseback is a very particular form of a financial instrument where one party (the seller/future lessee) that owns an asset sells the asset to the second party (the investor/future lessor). Then, the seller leases the asset back from the buyer, therefore the seller becomes the tenant, and the investor is the landlord. The benefit for the seller is that they can raise capital without moving or interrupting business operations.
Sale-leasebacks are still underutilised in Viet Nam. Many manufacturers and logistics companies are not aware of this method as a potential means of financing.
However, some international and even local players are starting to pave the way. The first high-profile sale-leaseback in Viet Nam’s industrial market was DKSH’s warehouse in Binh Duong in 2017.
In 2018, Mapletree Logistics Trust from Singapore invested $43 million in Unilever’s 66,800 GFA warehouse in Binh Duong. The property was leased back to Unilever on a 10-year term, providing a net initial yield of 8.3 per cent for Mapletree.
In 2020, Savills Vietnam brokered a successful sale-leaseback of warehouse space in the Di An Industrial Zone, Binh Duong. — VNS