The growth of automotive industry boosts industrial real estate

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Automobiles imported via Hiep Phuoc Port. Photo: T.H

Automotive industry grew sharply

In 2017, the Vietnam’s automotive market witnessed a series of important events on important policies. These events are expected to shape the future of Vietnam’s automotive industry.

The two most important events are the promulgation of Decree 116/2017/ND-CP (Decree 116) and Decree 125/2017/ND-CP (Decree 125) in October and November 2017. These Decrees aimed to improve the Vietnam's automotive industry through the application of legal standards for the expansion of production scale and enhance the quality of products in the country.

CBRE's report analyzes that although Vietnam’s automotive industry is still weak in production and assembly development compared to other ASEAN countries, the industrial land funds for the automotive industry is increasing in the market. At the same time, each region in Vietnam has its own competitive advantages based on differences in business and production, as well as available land fund.

Although the turnover in the southern area accounts for 43.16% of Vietnam’s total annual turnover, the size and production capacity in this area (including Ho Chi Minh City, Dong Nai, Binh Duong and Long An) is much lower than other areas. Meanwhile, assembly factories are mainly located in the northern areas with a network of factories of foreign automakers as well as automobile part production establishments.

The establishment of VinFast's factories has strengthened the automobile assembly and manufacturing in the northern area. Accordingly, with the solid platform on automobile part assembly and production in the north, the demand of automobile makers in renting with large industrial land funding to build factories in that area is considerable.

On the other hand, the central area is the least developed area for automotive manufacturing industry. Da Nang City and Quang Nam Province are the places where automobile factories are densely located. However, the Central area is also playing an important role in the automotive industry in Vietnam. Chu Lai - Truong Hai automobile complex developed by THACO Group is also a comprehensive automobile complex inclusive with manufacturing plants, assembly plants, supporting industrial factories, specialized warehouses and seaports.

Over the past 3 years, many effective transactions on industrial land leasing were appreciated in the southern area, and most of them belong to accessory factories with the demand on expanding their production.

Vietnam's automotive industry still faces challenges to enter the golden stage and surpass its competitors in the region. Policy makers play the most important role, but the industry needs more. A mutually beneficial relationship can be established for both the Government and real estate investors.

Investment opportunities for industrial real estate

Authorities are protecting the domestic four-wheel drive industry by implementing policies to protect domestic companies and providing opportunities for real estate industry investors to meet demand on expansion of the production as well as business of automobile companies.

In the opposite direction, industrial real estate investors provide not only to the Government but also to logistics providers solutions on the integration of production and supply activities in the form of a specialized automobile manufacturing complex.

In general, the automotive industry in Southeast Asia has achieved good growth thanks to strong and dedicated support along with protectionist policies from governments. In Vietnam, the recent rapid changes in regulations, policies and international trade agreements have had a significant impact on the market.

Accordingly, positive signals can be expected from these changes, not only for the domestic manufacturing industry but also for the consumer market.

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From the view of the real estate market, the most important aspect of the market's change and macroeconomic conditions is the increasing demand for production and expansion of industrial production size.

In fact, there have been many major agreements on leasing industrial and commercial land related to the automotive industry over the past 3 years, and agreements on demand on additional leasing in the coming time. The high occupancy rate and the increase in rental price are challenges for expanding production. However, this could also be an opportunity for real estate investors to take advantage of the current demand on expanding the production and current supply source.