FDI Surge Boosts Demand in Industrial and Serviced Apartment Sectors in Viet Nam

• The increasing FDI inflow has attracted many foreign experts to Viet Nam, raising the demand for serviced apartments managed by international operators. Occupancy rates and rental prices are both on the rise.
• Viet Nam is attracting the fourth wave of FDI into high-tech fields such as electronics, semiconductors, and renewable energy, increasing the demand for factories and industrial parks and promoting the development of green industrial zones.

Viet Nam is currently an attractive investment destination for foreign direct investors (FDI) thanks to its political environment, stable economic development, and competitive labour costs. According to the Foreign Investment Agency - Ministry of Planning and Investment, as of the end of June this year, the total direct investment from abroad into Viet Nam reached 15.2 billion USD, up 13.1% compared to the same period last year. Viet Nam is also on the verge of welcoming the fourth wave of FDI, focusing on high-tech fields such as semiconductors, electronics, and renewable energy.

With the influx of abundant FDI capital, several real estate segments, notably serviced apartments and industrial properties, have demonstrated remarkable growth.

Serviced Apartment Segment in Ha Noi Experiences Stable Demand Driven by FDI

According to Savills H1 2024 report, the supply of serviced apartments in Q2/2024 reached 6,096 units, up 0.3% compared to Q1/2024. The occupancy rate reached 83%, slightly increasing by 1 percentage point (ppt) quarterly and annually. The average rental price of this type of housing also achieved better levels, at 601,000 VND/m2/month, up 4% quarterly and 5% annually.

Two-bedroom apartments account for 58% and 53% of the demand for serviced apartments in central and other areas, respectively. Meanwhile, most tenants living in the West area prefer smaller apartments, like studios or one-bedroom units.

Evaluating the impact of FDI on the serviced apartment market, Matthew Powell, Director of Savills Ha Noi, stated: "The influx of foreign capital into Viet Nam has attracted numerous foreign experts, forming a crucial customer base for serviced apartments. These experts typically prefer serviced apartments managed by international operators, as they meet service quality requirements."

Infrastructure development also plays a significant role in enhancing the appeal of serviced apartments. According to Savill report, Ha Noi plans to fast-track several key projects, including the Thuong Cat Bridge, Van Phuc Bridge across the Red River, the eastern collector road of Phap Van-Cau Gie highway, and the My Dinh-Ba Sao-Bai Dinh connecting road. These improvements are expected to shorten travel times between central Ha Noi, where many serviced apartments are located, and the nearby industrial zones.

To meet the growing market demand, from 2024, about 5.909 serviced apartments will be supplied from 17 upcoming projects. Some notable projects include PARKROYAL Serviced Suites Ha Noi, Epic Tower, Fusion Suites, and Tay Ho Complex. Additionally, Swiss-Belhotel International, an international operator, will enter the Vietnamese market through the Epic Tower project. International property management agencies are expected to account for up to 55% of the total future supply of serviced apartments.

The Potential of Industrial Real Estate Amidst the Fourth Wave of FDI

According to the Foreign Investment Agency's announcement on attracting foreign capital in the first half of 2024, up to 70.4% of the total FDI is focused on the processing and manufacturing industries. At the same time, Viet Nam is on the verge of welcoming the fourth wave of FDI. This wave will likely focus on high-tech fields such as electronics, semiconductors, artificial intelligence, and renewable energy. The development of these fields directly impacts industrial real estate by increasing the demand for factories that meet good infrastructure and service requirements.

As investors seek to diversify their supply chain, driven by the increasing cost of manufacturing in China, Viet Nam has become a new destination considered by many investors. Recently, Nvidia from the USA has committed US$200 million to establish Viet Nam as a new technology hub. Similarly, Hana Micron from Korea and Intel have announced projects valued in the billions of USD, underscoring Viet Nam's growing appeal to global investors.

In terms of locations, according to data from the Foreign Investment Agency, Bac Ninh continues to be the top choice for investors, with a total registered investment of US$2.58 billion, representing 17% of the national total. Ba Ria-Vung Tau ranks second with US$1.54 billion, while Quang Ninh ranks third with US$1.36 billion. Other notable investment destinations include Ha Noi, Hai Phong, and Ho Chi Minh City.

However, many challenges still need to be addressed to continue attracting investment. Thomas Rooney, Senior Manager of the Industrial Real Estate Department at Savills Ha Noi, shared, "The biggest issue that current industrial zones face is energy capacity. Some investors require substantial energy supplies, up to 10-30 megawatts, which is currently challenging for many industrial parks to provide."

To address the electricity supply swiftly, the Government has initiated the Quynh Lap Thermal Power Plant project in Quynh Lap, Nghe An. With a capacity of 1,500 megawatts, this project is expected to begin operations between 2029 and 2030. Such efforts are crucial in maintaining Viet Nam's attractiveness to foreign investors.

Thomas also shared that industrial parks need to pay attention to the green movement to enhance their appeal to investors: "Developing green industrial parks is a trend not only in Viet Nam but globally." Therefore, more and more investors are focusing on the circular economy. Viet Nam aims to achieve net-zero emissions by 2050. Thus, the demand for green industrial real estate comes from sustainable development in manufacturing and government requirements. The biggest obstacle currently might be financial and regulatory issues. However, investors will undoubtedly cooperate to solve these in the future."

Based on primary data from working with clients, Thomas estimates that about 80%-85% of foreign investors have ESG standards requirements. At the same time, Viet Nam is adapting to this trend. According to data from the Ministry of Planning and Investment, by 2030, about 40-50% of provinces and cities nationwide will plan to transform existing industrial zones into eco-industrial zones, and 8-10% will aim to build new ones.