Industrial property – Tailwind is still blowing

• 2021 industrial property average rental price accelerated 6%-10% yoy in both Southern and Northern market, amid high demand but limited supply.
• We see twin tailwinds for industrial property in 2022F: resilient demand and abundant new supply.
• Our top picks for long-term investment are KBC, PHR and SZC.

Southern market: rental prices in satellite cities to increase robustly

Southern industrial land area rose by 5.2% yoy to c.38,400ha in 2021, leading to a 4.4% yoy increase in leasable area (c.26,000ha). Besides, we see warehouse (WH) and ready-built factory (RBF) market are emerging with new supply rising significantly by 10% yoy/8% yoy to 3.5 million sqm/3.2 million sqm in 2021. In the context of high demand and limited industrial land, average occupancy rate climbed to 89.6% while land rental prices kept rising by 8%-10% yoy to US$115-117/sqm/lease term. We see rental prices in satellite cities to impressively increase such as BR-VT (+c.15% yoy to US$85/sqm/lease term), driven by their accelerating infrastructure development.

Northern market: demand remained resilient

Northern industrial land area rose by 5.8% yoy to c.15,350ha in 2021, leading to a 6.0% yoy increase in leasable area (c.10,600ha). Likewise the South, demand continued to outpace supply with average occupancy rate growing 2.0% yoy to 86.6% and land rental prices kept rising by 6-8% yoy to US$108-110/sqm/lease term. For WH and RBF market, new supply rose 7% yoy to 1.3 million sqm and 9% yoy to 2.5 million sqm, respectively, in 2021.

FY22F outlook: tailwind is still blowing

We believe industrial property continue to do well in 2022F, fueled by 1) manufacturing expansion from both FDI and local players; 2) e-commerce boom, increased inventory requirements and supply chain diversification boosting the demand for IP land for warehouse services and 3) infrastructure development, empowered by accelerating public investment will buoy industrial property market. Besides, Vietnam industrial land supply is expected to rise more than 44,760ha in 2022-25F to capture the growing demand in the regions, mostly from Red River Delta and North Central Coast.

Our top picks for long-term investment are KBC, PHR, SZC

Downside risks are 1) another wave of Covid-19 variants globally could restrict sales activities with foreign enterprises; 2) continuously increasing land rental prices could dent Vietnam’s advantage with low operation cost, in our view. We like KBC, PHR, SZC for long-term investment, in view of their positive FY22F earnings outlook.

Please follow this link for the full report