Net absorption improves significantly h-o-h

• Net absorption in 2H22 was over three times higher h-o-h, thanks to considerable leasing efforts in new completions. Two new projects, LOGOS Bac Ninh – Site 1 and Mapletree Hung Yen Logistics Park 1 – Phase 2, reported a total of 84,500 sqm GFA leased out in 2H22. The most notable lease transaction in 2H22 was 65,000 sqm by Shopee in LOGOS Bac Ninh – Site 1.
• Ready-built warehouse (RBW) demand remained strong for projects located within 30 km, or 1 hour travel time from Hanoi city centre, due to having a suitable location for serving strong domestic consumption during the year-end period. On the other hand, those RBWs serving cross-border trading activities showed signs of demand slowing down as a result of the grim export situation.

Significant new supply enters Hung Yen and Bac Ninh

• In 2H22, the Northern market welcomed a significant amount of new supply, accounting for 24% of total stock. New 2H22 completions included Mapletree Hung Yen Logistics Park 1 – Phase 2, NPL Hung Yen, LOGOS Bac Ninh – Site 1, and LOGOS Bac Ninh – Site 2 in Bac Ninh and Hung Yen. Total prime RBW supply in the North increased from about 535,600 sqm by end 1H22 to about 705,200 sqm GFA by end-2022.
• Despite significant new supply, the vacancy rate fell by 4.2% h-o-h to 17.9%, owing to the healthy absorption of new supply from pre-leasing activities. Shopee, for example, has fully leased 65,000 sqm of LOGOS Bac Ninh – Site 1 since its construction commenced.

Average rents inch up, driven by higher rents in new completions

• The average rent of modern RBW in the Northern market increased slightly to USD 4.4 per sqm per month in 4Q22, rising by 2.5% h-o-h and 8.2% y-o-y. The high rents of new projects, LOGOS Bac Ninh Site 1 and Site 2, have pushed the average market price up slightly, while the rents of other projects tended to be stable. 
• The current gloomy global economy, tightening real estate credit, and prolonged legal issues have hampered the market’s yield compression trend. Yields continued to compress, but at a slower-than-expected rate, remaining stable h-o-h and falling by only 0.5% y-o-y. Meanwhile, capital value increased h-o-h due to an increase in rents and potential upside of some new completions.

Outlook: Abundant supply set to enter the market in 2023

• The Northern region’s modern RBW is expected to welcome a large pipeline of about 614,700 sqm GFA in 2023, driving total stock to nearly double the current level. Bac Ninh province will have the largest modern RBW supply, followed by Hai Phong and Hung Yen.
• The market will require time to absorb the abundant future supply. The market is expected to be quite competitive, with the vacancy rate likely increasing to 42.5% by end-2023. A high vacancy rate should put downward pressure on rents. While headline rents are unlikely to change significantly, considerable incentives in the form of extended rent-free periods are anticipated.