Rising land rents make manufacturers’ life miserable

13-Aug-2019 Intellasia | The Gaigon Times | 6:02 AM Print This Post

Constant rises in land rents at industrial parks (IPs) lessen the chance for Vietnamese enterprises to build new factories or relocate their production facilities

More than half a year has passed since a food processing company began to look for a plot of land in Binh Duong and Dong Nai to develop a factory so as to move its production facilities away from HCM City. However, it has not found a suitable location while industrial land prices in these two provinces keeps going up, says the company’s boss.

Two years ago, Long An was the locality chosen by this company for their relocation plan because this province borders HCM City. Unfortunately, the land rates for industrial facilities in Long An increased earlier than other localities did because of its convenient location, which helps shorten the time of transporting goods to HCM City and the Mekong Deltathe market the food processing company is targeting.

“Industrial land rents in these localities averaging $90-110 per square metre, or up to $130 in some cases, are too high whereas our capacity and production scale remain modest,” says the company’s CEO. “Such exorbitant rates also make it very difficult for other small and medium enterprises. I’m now considering another option, which is to rent a factory instead.”

Many other small and medium-sized companies have faced with similar dilemma. Tran Viet Tien, member of the Standing Committee of the Handicraft and Wood Industry Association of HCM City (HAWA), says many HAWA members are very worried as industrial land rents had been escalating with no end in sight. The wood industry which makes furniture and handicrafts requires spacious premises, so the surging industrial land rents make it really hard for them to relocate their production facilities or expand their scale, Tien says.

Reasons behind the soaring rents

IP infrastructure developers have forecast IP land rents will further jump as vacant lots are more scanty, especially in the context the wave of foreign investment in Vietnam is rising. In Binh Duong, areas within a radius of 40-60 kilometers away from HCM City have virtually no more land for IP development. In Dong Nai, the occupancy rate at local IPs by the middle of this year has grown to over 75 percent. In Long An, where 16 IPs are operating, the occupancy rate is higher than 80 percent. The price of industrial land for rent in this locality is up to $100-140 per square metre depending on location.

Studies done by real estate consulting companies also point to a constant rise in industrial land rents in recent years. As per a survey by Jones Lang LaSalle Vietnam (JLL), land rents in HCM City by the end of June 2018 had surged to $150 a square metre for each cycle, versus $143 in the fourth quarter of 2017. This June, land rents at IPs in the city kept up the momentum, hitting $162 per square metre.

For the whole southern market, industrial land rents escalated from $72 per square metre in the second quarter of 2018 to $80 in the fourth quarter, and reached a new peak of $95 per square metre for the cycle until June 2019. This is considered a very high rent increase margin for the industrial real estate market.

Long An may arguably be a new option besides the two traditional destinations for industrial investment, namely Binh Duong and Dong Nai, recording the highest rent growth rate in the last quarter. Currently, the average IP land rent in Long An is over $100 per square metre for each cycle, only behind HCM City in the southern market.

At present, the average occupancy rate at IPs and export processing zones in the south is as high as 81 percent, with HCM City, Binh Duong and Dong Nai as the strongest magnets regardless of the surging rents.

The monthly rent of ready-built factories is $3.5-5 per square metre, for a minimum term of 3-5 years. This rate is slightly higher than the updates of the previous two quarters, thanks to the growing demand for this category of land.

https://english.thesaigontimes.vn/70462/rising-land-rents-make-manufacturers percente2 percent80 percent99-life-miserable.html


Category: Business, Vietnam

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