Industrial performance in 2021 has been strained by the pandemic, as many localities with large industrial parks had to impose prolonged lockdowns. Q3/2021 was particularly testing for the sector as industrial production in October 2021 dropped by -1,6% year-on-year (YoY), the smallest decline since July, after a -7.5% decline in September. Industrial output dropped for four straight months from July to October 2021, as Covid-19 disrupted production, supply chains, and general movement domestically and internationally.

Looking at Viet Nam’s industrial performance, the NKEZ shows how Viet Nam is an increasingly popular manufacturing destination and is becoming a manufacturing hub. This zone comprises Ha Noi, Bac Ninh, Hung Yen, Vinh Phuc, Hai Duong, Hai Phong, and Quang Ninh provinces and has well-developed transportation networks; some key infrastructure projects in Ha Noi include Ring Road 2, Metro Line 3, and phase two of Vinh Tuy Bridge. The NKEZ also benefits from its prime industrial land supported by new infrastructure development, and proximity to China. As of Q3/2021, the NKEZ had 20,567 ha of industrial parks and leasable industrial area, increasing 2.35% YoY.

Due to travel restrictions and relatively stable occupancies, price escalations were modest compared to the 2018 - 2020 period. On average, the land lease price increased by 9.8% YoY, reaching US$/100 /m2. Ha Noi had the highest prices at US$129/m2. Prices in Bac Ninh reached US$106/m2, US$101 /m2 in Hai Phong, and prices in Hai Duong reached US$79 /m2. Hung Yen had the biggest YoY increase of 22%, reaching US$101/m2.

Bac Ninh is a leading NKEZ province in terms of industrial land supply thanks to 15 projects spanning a total of 5,797 ha. Bac Ninh also has the most upcoming projects with five IPs, including the 208.54-ha Que Vo III IZ with a total investment of US$120.9 million, and the US$172.2 million, 250-ha Gia Binh II IZ. Bac Ninh also leads ready-built warehouse and ready-built factory supply in the North, at 10.2% of the national supply; Hai Phong, Hai Duong, and Thai Nguyen follow with 7.6%, 4.7% and 4.6% respectively.

Despite the pandemic, occupancies remained largely stable across the NKEZ at an average of 87% in H1/2021. Bac Ninh led with 99%, and Ha Noi’s occupancy increased 1% YoY with 13 projects to 91%. Occupancy in Hai Duong increased by 5% YoY to reach 86% with 10 projects. Vinh Phuc and Hung Yen had 88% occupancy each, representing a -1% YoY decrease for Hung Yen.

Mr Le Huy Dong, Manager of Industrial Services, Savills Ha Noi said: “With 99% occupancy, available supply in Bac Ninh is low but demand for industrial properties is still high. This means the prices are high, almost approximating Ha Noi’s land lease price. However, Quang Ninh, Hung Yen, Bac Giang, and Hai Duong are stepping into the spotlight! These areas benefit from abundant natural resources and good positioning. Quang Ninh has both coast and land boundaries, a deepwater port, and Van Don International Airport. Several bridge projects are expected to launch, and this will reduce the travel time between Quang Ninh and Ha Noi.”

Viet Nam’s industrial sector is seeing growth as many companies are relocating from China. Factors like the US-China trade war and increasing manufacturing salaries (US$1,072/month) in China make Viet Nam (with government incentives and competitive manufacturing salaries of US$315/month) an attractive manufacturing choice. However, the prolonged lockdowns and travel restrictions in 2021 slowed relocations out of China, but developers believe that leasing will be more active in 2022 as travel restrictions ease and tenants and investors will have a choice of new supply.

In terms of FDI by region in 9M/2021, the North had the greatest newly registered manufacturing FDI of US$3,99 billion or nearly 73% of the national newly registered FDI. The South had US$1,06 billion or 19,44%, while the central region had 7,63% or US$418 million. By province, Quang Ninh had the most newly registered manufacturing FDI of US$935 million, Vinh Phuc followed with US$693 million, Bac Giang had US$597 million, and Bac Ninh had investment of US$294 million. Overall, industrial development in the North has growth potential; Mr Le Huy Dong added: “We are seeing that much of the newly registered FDI entering Viet Nam is in the North. This is as its industrial land is more reasonably priced and is in relatively high supply.”

FDI by sector clearly shows Viet Nam’s industrial transformation, moving away from low-value, low-skilled industries to those that are high-value. In the NKEZ, electrical equipment accounted for 18% of manufacturing FDI in 9M/2021 and computers and electronics accounted for 16%. Mr Campbell commented: “Most manufacturing FDI in 9M/2021 came from value-added products such as phones, computers, and electronics. Compare this with FDI ten years ago and Viet Nam’s move up the value chain is abundantly clear.”