Low net absorption in new projects amid bleak demand

• In general, retailers, e-commerce and 3PL tenants remained the major demand drivers. However, Modern Ready-Built Warehouse (RBW) rental demand in 1H23 has slowed. As shopping activity in 1H23 was not as active as in 2H22 due to lingering economic stagnation, enquiries from retailers and e-commerce players have fallen.
• Net absorption witnessed a decrease in 1H23 compared to 2H22, with about 64,000 sqm of Modern RBW leased, and the contributions have come mainly from the leasing efforts of existing projects. New completions in 1H23 have not recorded good net absorption because pre-leasing activities were faced with many challenges amid the economic downturn and increasing supply. 

Significant new supply from Bac Ninh, Hung Yen and Hai Phong

• In 1H23, Modern RBWs in the Northern market welcomed a large amount of new supply, up to about 222,800 sqm from five projects in Bac Ninh, Hung Yen and Hai Phong. Newly-launched projects accounted for 23% of the total supply, marking the official entry of Indochina Kajima into Hai Phong with the Core5 Deep C 2 project and Vietlog Industrial into Hung Yen with the VLI Minh Quang IP project.
• Bac Ninh and Hung Yen are ideal locations for logistics activities for components and electronics factories, FMCG manufacturers, 3PL and e-commerce companies. Meanwhile, Modern RBWs in Hai Phong have taken advantage of their proximity to seaports and the province’s initiatives to draw in processing and manufacturing firms as tenants.  

New supply of high-quality projects boosts average rents

• The average rent of Modern RBWs in the Northern market was recorded at USD 4.71 per sqm, per month in 1H23, rising by 4.0% h-o-h and 8.6% y-o-y thanks to higher prices in new high-quality projects, while the rents of other projects tended to be stable.  
• Capital value increased slightly, mainly driven by the higher rents of new completions. The overall market yield in 1H23 decreased slightly by 10 bps to 8.4% in the context of the continued gloominess of macroeconomic conditions.

Outlook: Total stock by end-2023 to be 1.6 times of 2022’s

• The 2H23 market is expected to witness another wave of new supply from four projects, totalling about 213,000 sqm of leasable space. Hai Phong alone is expected to contribute about 90% of the new supply from key players, namely, KCN Vietnam, GawNP and JD Property. By the end of 2023, the Northern market stock will reach about 1.19 million sqm, nearly 1.6 times more than that of 2022.
• The market is seeing a wave of factory relocations from textiles, telecommunications and high-tech photovoltaic companies from China to Vietnam. Of those, Bac Ninh, Bac Giang and Hai Duong are the preferred options due to location advantages and competitive land rents. Although there have not been any big, evident changes, this is a positive signal for subsequent demand in the Northern market.