Prefab factories trending now in IPs
Prefab factories trending now in IPs
Industrial park developers are turning from long-term land leases to added-value pre-fabricated factory construction for lease with areas of about 2-3,000 square metres, according to experts.
Jonathan Tizzard, national head of research and valuation at Cushman & Wakefield, said a recent trend indicated developers were turning from long-term leases to dividing the total land area into plots and constructing factories, warehouses or storage for lease.
According to Ho Chi Minh City Export Processing and Industrial Zone Authority (HEPZA), in 2013, the total leased area of warehousing in the city’s industrial parks reached 55,680 square metres, representing a sharp increase of 37 per cent year-on-year.
“This proved the demand for this type of industrial property is following an upward trend,” Tizzard claimed.
“Demand mainly comes from small and medium foreign invested enterprises (SMEs) support industries which reflected the local authorities’ success in attracting support industries,” he pointed out.
Kelvin Teo, co-chairman of VSIP Group and CEO of Sembcorp Development told VIR that manufacturers often weigh up different rental options.
“Short-term leases give manufacturers flexibility to first understand the country’s operating environment and customer demand before making more long-term investment decisions,” he said.
For VSIP, the company is offering ready-built factories (RBF) in VSIP Binh Duong and Haiphong.
“From our experience, the RBF are popular with some foreign companies who are new to investing in Vietnam,” Teo said.
The reason for this move, according to Tizzard, was that those newly established companies investing in the Vietnam market firstly need to understand the country before settling down for the long term, and therefore leased warehouses inside IPs over 2-3 years allow them to pilot manufacturing instead of leasing industrial land for 50-year periods.
Another reason was to meet foreign investor demands for convenience.
“In the difficult economic context, leasing built factories is preferable for new businesses that want to begin exploiting opportunities in the shortest time,” added Tizzard.
It is estimated that factories take at least four to five months to complete with construction costs ranging from $170 to $400 per square metre depending on their specialism.
In contrast industrial warehousing can help enterprises save time and money otherwise wasted on building infrastructure.
Moreover, most IPs require upfront full payment for the whole leasing period (averaging 30 to 50 years). Leased factories by contrast can help small foreign companies with limited initial equity to save money and minimise risks.
Another advantage of this change is the rent achievable for leasing land with built factories is still being kept relatively high and stable over quarters despite the decreasing rent in other segments in the market.
The asking rent averages from $2 to $6 per square metre per month. Given the increasingly high demand of SMEs entering Vietnam, especially those moving from China, this move will help developers to attract tenants by providing them with more flexibility in leasing choices, Tizzard said.
To support this change, the government has allowed investors who have been issued investment certificates by December 31, 2012 to amend their business purposes in those certificates to include warehouse leasing activities.
At the same time, industrial park managers have been applying policies to support investment from foreign invested SMEs that will be the main demand driver for built factory leasing by working with infrastructure development companies to build qualified warehouses and filtering out enterprises with poor performance to have more space for building factories/warehouses for new investors.
IP management bodies are also providing more services to support new enterprises in leasing factories such as labour recruitment, investment consultancy, training, accounting and management consultancy.
There are currently 18 operating IPs in Ho Chi Minh City providing more than 3,600 hectares. The leasable area is estimated to be about 62 per cent of the total industrial land scale, or more than 2,200 hectares.
It is predicted that the total increase in industrial land in Ho Chi Minh City up to 2020 will be approximately 3,000 hectares, a roughly 85 per cent increase from the fourth quarter of 2013. In terms of the number of IPs, it is forecast that the 18 current parks will expand and there will be 12 new IPs in operation by 2020.
Meanwhile in Hanoi, nine IPs with a total leasable area of approximately 1,400 hectares are currently in operation. Available land for lease in the fourth quarter of 2013 accounts for roughly 34 per cent of the 1,400 hectares, the same as the previous quarter.
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