VIETNAM INDUSTRIAL

REAL ESTATE MARKET

How The Market Benefits from Growth of
Vietnam Automobile Industry

CBRE RESEARCH

1 | CBRE RESEARCH © 2018 CBRE, Inc.

 01 Introduction

02 Executive Summary

03 Market Overview

Market Trend: Great Potential Seen in

04 Vietnam Automobile Industry

TABLE OF
Recent Changes in Vietnamese
05 Government Policies to Support

CONTENTS
Domestic Automobile Industry

06 Improvements of Infrastructure across Vietnam

Challenges and Opportunities for

07 Domestic Production

08 Opportunities for Industrial Real Estate

Key Transportation Infrastructure of

09 Industrial Zones

10 Conclusion

CBRE RESEARCH © 2018 CBRE, Inc.

 The Vietnam Automobile Industry has been expected and most importantly planned to be
a spearhead industry for the country’s economy. However, the twenty-year-old industry is
still now struggling with the matter of its low localization rate and increasing competion
of ASEAN-origin car in the domestic market. The main reason is that the industry itself
cannot develop a firm supportive auto-part-manufacturing foundation despite strong
protection and support of central authority. Recent rapid changes in terms of regulation,
policy and international trade agreements impose significant impacts on the market.
Accordingly, positive signals can be expected from the implication of these changes not

INTRODUCTION only for the domestic manufacturing industry but also for the consuming market. From real
estate perspective, the most important aspect of the market changes and favored macro-
economic conditions is the growing demand of manufacturing and business expansion in
terms of industrial land. There are large industrial and commercial land leasing deals in
relation to automobile industry which has been recorded for the last three years and more
leasing enquiries for the up-coming period. The high occupancy rate as well as increasing
rental cost of current industrial land supply challenges the growing demand of production
scale widening. However, it can be opportunity for real estate developer now to exploit
benefit from both manufacturing expansion need and limited current supply.

5 | CBRE RESEARCH © 2018 CBRE, Inc.

 The consumer demand for automobile in Vietnam is driven by favourable macro-economic
conditions such as high and stable GDP growth rate as well as growing average income
level, rapid improvements in infrastructure, increasing middle and affluent class. Even
though Vietnam Automobile Market is a very potential one, the domestic manufacturing
industry is still not able to satisfy the very fast-growing demand due to long term
major issues such as low localization rate, high production cost and lack of production
experience.

EXECUTIVE
Domestic protection of the government in terms of policy and market regulation plays
an important role in developing Vietnam Automobile Industry. Recent changes of

SUMMARY
government’s policy affect significantly the automobile manufacturing and assembling
industry. These changes also create opportunities for industrial land development.
Industrial real estate developer is now in a very good time to exploit benefit from the
manufacturing expansion demand of automobile manufacturers and assemblers. Besides,
they also can offer solutions in terms of automobile specialized industrial zones for the
government to boost this industry. In Vietnam, even though the automobile industry is
far behind in developing production and assembling with other ASEAN countries, but
industrial land accumulation for automobile industry has been increased in the market.
Each region of Vietnam has its own competitive advantages which are based on the
differences in the trading nature and available land bank.

7 | CBRE RESEARCH © 2018 CBRE, Inc.

 Total Automobile Unit Sale 2013 -2017 CAGR Number of Companies
300,000
250,000
Sale unit

200,000
150,000
100,000
50,000
19.8%
14
0
2014 2015 2016 2017 7M 2018

Sale of Passenger car

Original Equipment
Sale of Commercial vehicle car
Manufacturers
Total unit sale

Key Players and Market Share Domestic Production And Import

2.4%
2.7%
2.2%
6.5% Impact
from
MARKET
OVERVIEW
250,000 Decree
2.8% 116 & 125
3.2% 200,000
4.2%
35.8%
150,000

Unit
4.9%

11.4%
100,000
24.1%
50,000

THACO Toyota Ford

0
Honda GM Vietnam Isuzu 2014 2015 2016 2017 7M 2018
Mercedes-Benz Mitsubishi Vietnam
Vietnam (Vinastar)
Suzuki Complete Knocked-Down Unit Volume
Do Thanh Others Complete Built-Up Unit Volume

CBRE GLOBAL RESEARCH

This report was prepared by CBRE Vietnam Research Team, which forms part of CBRE Global Research—a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions
to real estate. *Note: CBRE Research tracked close to 400 restaurant openings in 2017. © CBRE Ltd. 2018 Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have
not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the mate-
rial are reserved and cannot be reproduced without prior written permission of CBRE.

VIETNAM INDUSTRIAL REAL ESTATE MARKET | 8

 Vietnam Population

100 1.6%
90 1.4%
80
1.2%
70

Million people

Growth rate
60 1.0%
50 0.8%
40 0.6%
30
0.4%
20
10 0.2%
0 0.0%

2000
2002
2004
2006
2008
2010
2012
2014
2016
MARKET TREND: GREAT
POTENTIAL SEEN IN VIETNAM
Population Population growth

AUTOMOBILE INDUSTRY
Source: General Statistics Office of Vietnam

The Vietnam automobile industry itself contains a great potential. Relentless demand seems
to be difficult to satisfy by both domestic and foreign suppliers. A ninety-four-million-
people market along with rising income level is very attractive. The scale of Vietnamese
population has gone up steadily from 77.6 million people in 2000 to 93.7 million people
in 2017 (growth rate at average 1.13% per year). A more impressive trend is that GDP per
capita of Vietnam increase 6 times since 2000. Economic boom has shot the civils’ income
up to US$2,385/person in 2017 from only US$404/person in 2000. Consequently, there
is more room in wallet of Vietnamese people for spending on upgrading their personal
transportation vehicle. Even though Vietnamese consumers are paying many relevant fees
and taxes which make automobile price in Vietnam as three times higher than that of other
countries, they are still willing to pay more.

11 | CBRE RESEARCH © 2018 CBRE, Inc.

Market Trend: Great Potential Seen in Vietnam Automobile Industry CKD Volume
Total automobile unit sale in Vietnam shows an upward trend since 2014. VAMA’s data of 70,000 40%
Vietnam GDP Per Capita
July 2018 recorded 21,466 units absorbed by the market, which increase 3.89% y-o-y. Sale 60,000 30%

Growth (q-o-q)
50,000 20%
growth rate of market reached 23% on average per annum from 2014 to 2017. In terms of
10%
2,500 30% production, Complete Knocked-Down car (CKD) volume has gone up sharply. Total 228,476 40,000

Unit
0%
vehicles assembled in Vietnam as of 2016, showing an increase of 32% y-o-y. Import volume 30,000
2,000 25% -10%
of Complete Built-Up car volume (CBU) fluctuated even more wildly in comparison with CKD. 20,000

Growth rate
USD/person

-20%
20% It reached the peak of 12,577 CBUs in November 2015 before dropping to 2,475 units 10,000 -30%
1,500
in February 2016. The aim of government to control CBU volume has imposed significant 0 -40%
15% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
influence on the CBU segment and made it more unstable. Obviously, either CKD or CBU
1,000
10% segment developments revealed that Vietnam is so far growing with a very fast pace. 2014 2015 2016 2017 2018
500 5% CKD volume Growth rate

0 0%
CBU Volume
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
Total Sale Unit of VAMA Members 35,000 100%
30,000 80%

Growth (q-o-q)
GDP per capita GDP per capita growth rate 60%
Growth of Middle-class Population 25,000
350,000 60% 40%

Growth (y-o-y)

Unit
20,000 20%
Growth period: 300,000 50%
Source: General Statistics Office of Vietnam 15,000 0%
- Dark green: 2005 - 2015 250,000 40% -20%
10,000

Unit
Proportion of Vietnam’s Middle-class Population - Light green: 2016 - 2020 200,000
30%
5,000
-40%
20% -60%
150,000 0 -80%
10%
20% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2035F 18%
100,000 0%
2014 2015 2016 2017 2018
16% 50,000 -10%
14% 0 -20% CBU volume Growth rate
12% 2013 2014 2015 2016 2017
10% Source: Vietnam Automobile Manufactures’ Association
8%
26% 6%
4%
Total unit sale Growth rate (y-o-y) Complete Built-Up (CBU) Complete Knocked-Down (CKD)

2016 2%
0%
Source: Vietnam Automobile Manufactures’ Association (VAMA)

• Imported in fully built and furnished • Imported in fragmented parts and

Singapore

Thailand

Malaysia

Indonesia
Phillippines

Vietnam
unit. then assembled in local factories.

50%
• No assembling plant or • Lower import tax rate than CBU unit.
manufacturing factory required. • A proportion of local auto parts can
• Higher import tax rate than CKD unit. be used in assembled CKD units.

10%
• No local segment involved. • Level of localization rate is an
202 6 F Note: Middle-class families are
defined as earning $11 to $110 pppd. important index to reflect level of
industrial manufacturing.
Source: World Bank Source: Brookings Institute
2005-15 2016-20
VIETNAM INDUSTRIAL REAL ESTATE MARKET | 12 13 | CBRE RESEARCH © 2018 CBRE, Inc.
Huge potential of growing automobile market attracts more and more foreign investors
regarding assembling, trading as well as accessories manufacturing. Auto part manufacturers,
following the expansion wave of domestic car assembling, also take actions to join the market
or at least enhance their presence.
In fact, the reported FDI figures have released optimistic signals for the industry. From 2014
to 2017, both registered FDI capital and number of FDI projects increased steadily, of which
Number of Registered FDI Projects of Vietnam
manufacturing accounts for 52.44% of total projects and 57.72% of total registered capital on
average. Automobile trade and repairs, meanwhile, only accounts for nearly 9.42% of total
projects as well as 1.75% of capital. However, this sector recorded a very impressive growth
rate at 15.45% y-o-y in terms of number of project. Furthermore, foreign capital flow into
automobile retail trade and repair sector has grown by 26.60% y-o-y since 2014, which is a firm
evidence for increasing interest of foreign investors on Vietnam automobile industry.
Total Registered FDI of Vietnam
In comparison with Thailand and Indonesia automobile industry, Vietnam’s one is much weaker
in terms of production scale as well as capability. The main reason why the neighbor industries
gain so much more achievements is the important role of protection policies of governments for
their domestic industry.
One of the most difficult challenge of Vietnam automobile industry is its low localization rate.
It could be observed that the main purpose of government’s domestic industry protection is
increasing localization rate which is now only at 23%. Even though the outlook of Vietnam
automobile market is optimistic, and the potential is huge, but the current market size is
insufficient, of which domestic demand is not enough to ensure economies of scale. Fourteen
OEMs are operating in Vietnam in both CKD assembling as well as CBU importing. Their
expected number of cars sold is much more than 270,000 units on average per year as reported
now. Furthermore, there are OEMs which consider closing their Vietnamese plants and shift
to importing from regional production hubs, especially Thailand, due to the removal of tariffs
from ASEAN countries (Martin SCHRÖDER, 2017). Besides, automakers not only need to build
factories and warehouses but also prepare customized equipment to produce 4-wheel cars,
which might be considered as risky investments for producers who have low capital. Labor
wage’s growth rate of Vietnam is faster than that of productivity growth and this also make
Vietnamese car production cost is higher. Accordingly, Vietnam’s manufacturing cost is about
5-10% higher than Thailand due to auto parts are imported instead of purchasing from local
market, which makes costs higher due to import tax, transportation & packaging costs. Ford
has publicly stated that the cost of local production was 20% higher than CBU imports (Martin
SCHRÖDER, 2017). In competition with foreign auto part makers, Vietnamese rivals are also
weaker in terms of technological capability. Lack of manufacturing experience, low safe code
and quality assurance as well as small production scale are main reasons why Vietnamese auto
part makers themselves are being overwhelmed in their own playground.

14,000 200,000
Industry Category Thailand Indonesia Vietnam
180,000
12,000
160,000 • Highly advanced, ranked 12th • Developing • Small market size
10,000 140,000

MIllion USD
among the world in term of • Expanding market size with • Low competitive advantage
120,000 Automobile Maturity of market production output. rapid improvement in • Cannot compete with
Project

8,000 • Exporting products can compete with competitive advantage imported cars.
100,000
6,000 products from manufacturing hub. • Can compete with imported cars
80,000
4,000 60,000 Size of market USD 27 billion, 12% of GDP 9.4% of GDP Minimal
40,000
2,000 Production (unit) 1.988 million (+2% y-o-y) 1.216 million (+3% y-o-y) 0.195 million (-17% y-o-y)
20,000
0 - Sales 871 thousand (+13% y-o-y) 1.079 million (+2% y-o-y) 250 thousand (-7% y-o-y)
2014 2015 2016 2017 2014 2015 2016 2017
Number of company 2,428 751 195
Wholesale and Manufacturing Wholesale and retail Others
retail trade, repair trade, repair of motor Localization rate 85% 80% 23%
Manufacturing Others vehicles and motorcycles
of motor vehicles
Auto Part Number of companies 710 144 14 OEM companies as of 2017
and motorcycles
Can only export cars to developing • High production cost
• High labor cost
Issue countries since they have low standard • Low localization rate
• Lack of labor
safety and gas emissions • Low economy of scale

Source: Ministry of Industry and Trade of Vietnam, Thailand board of Investment and Indonesia Investments

VIETNAM AUTOMOBILE INDUSTRY | 14 15 | CBRE RESEARCH © 2018 CBRE, Inc.

 Car demand has been also supported by the improvement of infrastructure. Thanks to the large investment of central authority, a wide and high-end network of express way has been deployed
to cut off travelling time as well as connecting economic centers. Most modern express ways are distributed mainly in Hanoi and HCMC surrounding areas. The amount of time spent on going
to these big cities from neighboring provinces is reduced dramatically. It is said that the existence of express ways encourages people on living further from their hometown and require a more
comfortable mean of transportation. Hence, car is considered as the best option.

Vietnam’s Among Asia’s Biggest Infrastructure Spenders by Percentage

of GDP (as of 2016)

CHINA

IMPROVEMENTS OF VIETNAM

INFRASTRUCTURE INDONESIA
ACROSS VIETNAM
MYANMAR

SINGAPORE

PHILLIPINES

MALAYSIA

THAILAND

Source: Asian Development Bank 0% 1% 2% 3% 4% 5% 6% 7%

17 | CBRE RESEARCH © 2018 CBRE, Inc.

Map of Vietnam Deep Sea Port Network Map of Vietnam Express Way Network
Completed Build before 2020 Build before 2020 Potential project Potential project
North – South Express Way
Ha Giang – Tuyen Quang Thai Nguyen -–
Cho Moi – Bac Can
Phase 1: 2017 – 2020
Dong Dang – Tra Linh
Mai Son (Ninh Binh) – Bai Vot (Ha Tinh) Lai Chau – Bao Ha Ha Noi – Lang Son
Noi Bai – Ha Long
Quang Ninh port Cam Lo (Quang Tri) – La Son (Thua Thien Hue) Ha Noi – Lao Cai

Ha Long – Mong Cai

Nha Trang (Khanh Hoa) – Dau Giay (Dong Nai) Hoa Binh – Son La –
Hai Phong port Dien Bien

Cao Bo (Nam Dinh) – Mai Son (Ninh Binh) Nam Dinh – Phu Ly

Ben Market – Yen My Ninh Binh – Quang Ninh – Hai Phong

La Son (Thua Thien Hue) – Tuy Loan (Da Nang)
Cua Lo port Cao Bo – Thinh Long
Mai Son (Ninh Binh)

130,216 VND Billions Bai Vot (Ha Tinh)

Thanh Thuy Border Checkpoint

713 km
Hong Linh

Cam Lo (Quang Tri)

La Son (Thua Thien Hue)

Chan May port
2021 – 2025
Da Nang port
Bai Vot (Ha Tinh) – Cam Lo (Quang Tri)
Dung Quat port
Quang Ngai – Nha Trang (Khanh Hoa)

Qui Nhon – Pleiku

113,096 VND Billions
Qui Nhon port
659 km
Van Phong port Pleiku – Le Thanh Border Checkpoint

Chon Thanh – Hoa Lu Cam Lam

Border Checkpoint (Khanh Hoa)
Phase 2: After 2025
TP.HCM – Moc Bai
Dau Giay –
Lien Khuong – Da Lat
HCMC – Thu Dau Mot –

Saigon port
Improvement Chon Thanh Phan Thiet (Binh Thuan)
Bien Hoa – Phu My – Vung Tau
Hiep Phuoc port 69,123 VND Billions Dau Giay (Dong Nai)
Vung Tau port
Chau Doc – Can Tho – Soc Trang
Cai Mep port Ha Tien – Rach Gia – Bac Lieu

Can Tho – Ca Mau

Source: Vnexpress

VIETNAM AUTOMOBILE INDUSTRY | 18 19 | CBRE RESEARCH © 2018 CBRE, Inc.

 Since the beginning of 2017, the Vietnam automobile market has witnessed a series of significant events. They are expected to re-shape prospect of the whole industry. In addition, the market’s
positive expectations from these events influences has been worth waiting from both consumers, assemblers and distributors. Accordingly, the immediate influences have been observed in the
market in terms of supply and product’s price. However, the market recorded contrasted figures with the expectations and adjustments of market to the changes occurs quite rapidly.

Automobile Industry Highlights of 2017 and 2018

February 2017 June 2017 October 2017 December 2017

The race of decreasing
price between manufacturers and
assemblers kick-offed by Nissan.
Ministry of industry and Government promulgated Launching new bus factory of
trade proposed industry Decree 116/2017/NĐ-CP Truong Hai in Chu Lai -
development solutions for which was officially effective Truong Hai Complex (Quang
automobile in which there on 01 January 2018. Nam province, Vietnam).
will be no application of
Special Consumption Tax on
domestic value-added parts.

LOCAL POLICY CHANGES

AND SUPPORT

March 2017 September 2017
Deploy construction of Mazda • Deploy construction of
factory of THACO in Chu Lai VinFast factory in Dinh Vu
- Truong Hai Complex Industrial Zone (Hai Phong
(Quang Nam, Vietnam). City, Vietnam).
• Business agreement
between BMW and Truong
Hai was announced.
2018
• January and February:
November 2017 Dramatical decrease of
CBU imported volume
• Government promulgated in Vietnam.
Decree 125/2017/NĐ-CP
which was officially on 01 • April to September:
January 2018. – Car prices went up
significantly due to
• Truong Hai acquired the lack of supply.
commercial distribution and
production of Fuso truck and – Rising sales proportion of
others with Daimler in Vietnam. CKD thanks to the shortage
of CBU supply in the market.

• June and November:

– VinFast officially joined
the market through
many marketing and new
Source: CBRE Vietnam
product introduction activities.

21 | CBRE RESEARCH © 2018 CBRE, Inc.


VIETNAM AUTOMOBILE INDUSTRY |
The most important events were the
promulgation of Decree 116/2017/NĐ-CP
(Decree 116) and Decree 125/2017/NĐ-CP
(Decree 125) in October and November 2017
respectively. Decree 116 regulates stricter
criteria for manufacturing, assembling and
importantly CBU import. According to Decree
116, automobile importers must provide a
Vehicle Type Approval (VTA) certification issued
by authorities in the exporting country for
CBU. Without such a document, a separate
certificate of quality, technical safety, and
environmental protection of the automobile
or engine must be also provided. It is obvious
that the Decree 116 set up technical barriers
for CBU import which are very difficult to
overcome. Meanwhile, notable regulations
of Decree 125 released tax incentives
for imported automobile accessories by
decreasing import tax rate to 0%. Broadly
speaking, these two decrees has been served
as protective solutions for domestic automobile
industry in term of development policy. After
a twenty-year period of domestic protection,
the decree promulgation in 2017 seems to be
the most aggressive action of the authority to
again boost up an underdeveloped industry.
22
Decree 116/2017/NĐ-CP
Issuing date
17th October 2018
Effective date
1st January 2018
Content
Regulation on criteria for automobile manufacturing,
assembling, importing and doing business of maintenance
and repairing services.
Notable regulations
• Strict and compulsory technical criteria for manufacturing,
assembling, maintenance and repairing car regarding land
usage and standard of factories, related infrastructure, labor
and environmental standard, safety codes and employee
workmanship.
• Qualified organizations for CBU import must have physical
infrastructure such as factories, workshops, warehouses for
maintaining and repairing automobile under their ownership
or leasing.
• Compulsory documents for CBU:
—— A copy of the certificate of eligible imported automobile
class issued by a foreign competent authority.
—— A factory quality control slip prepared by a foreign
automobile manufacturer/assembler for each automobile.
—— Valid documents on assessment results of quality
assurance conditions of the foreign automobile
manufacturer/assembler for the factory producing
imported automobile classes issued by a foreign
competent authority.
Decree 125/2017/NĐ-CP
Issuing date
16th November 2018
Effective date
1st January 2018
Content
Amendment and Supplement of export duty schedule,
preferential import duty schedule, list of commodities and their
flat tax rates, compound tax rates and outside tariff quota rate.
Notable regulations
• Preferential import duty rates of 0% imposed on imported
auto parts of automobile.
• Conditions for executing preferential import duty scheme:
—— Automakers shall make a commitment to manufacture
and/or assemble car that meet Euro 4 standard (from
2018 to 2021) and Euro 5 standard (from 2022
onwards) and achieve the required production volume in
general for some specific type of car.
—— Import auto parts of automobile is for manufacturing and
assembling car and cannot be manufactured in Vietnam.
23 | CBRE RESEARCH © 2018 CBRE, Inc.
 Government legal adjustments have immediately imposed its impact on the market. From January to February 2018, the number of imported car decreased dramatically. Only 66 car were
imported in the first two month of 2018, the lowest number ever recorded.

Number of CBU from Jan to Sept 2018 Value of CBU from Jan to Sept 2018

8,000 160,000,000 Recovery Period

7,000 140,000,000
6,000 120,000,000
5,000

Unit
100,000,000

USD
4,000
80,000,000
3,000
60,000,000
2,000
1,000 40,000,000

CHALLENGES AND 0 20,000,000

0

Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Jul-18

Aug-18

Sep-18
OPPORTUNITIES FOR

Jan-18

Feb-18

Mar-18

Apr-18

May-18

Jun-18

Jul-18

Aug-18

Sep-18
DOMESTIC PRODUCTION Under 9 seats Over 9 seats
Truck Others Under 9 seats Over 9 seats Truck Others

Source: Vietnam General Department of Customs

However, the market reacted rapidly to policy changes. Since March 2018, the figure revealed
a significant rise in terms of unit volume and value. The import reached 11,172 units in
September 2018, which is equivalent to a total of US$234,150,343 in value. Furthermore, it
is worth noticing that Thailand and Indonesia dominate the CBU market. They benefit from
the ASEAN Trade in Goods Agreement (ATIGA) which reduces import tax rate of ASEAN-
origin CBU to 0% (effective on 01 January 2018). In addition, these countries are automobile
manufacturing centers of the region and easily support automakers to meet new criteria for
CBU of Vietnamese government.
 
It could be observed that ASEAN-based-factory automakers have deal with the sudden
changes in the market quite well. Companies such as Toyota and Honda could easily obtain
VTA from authority of automobile-export-oriented countries. Meanwhile, the tightened
regulations, along with Circular No.03/2018/TT-BGTVT have set more challenges for
European automobile companies. However, it is just the matter of time. The aim of domestic
protection seems to be a failure in term of decreasing CBU volume. Nevertheless, there is still
a chance for domestic manufacturing industry and even for industrial real estate. According to
the Decree 125, qualified automobile corporation for the tax incentives scheme must commit a
minimum CKD volume in general and for specific types of car as well as technical standards in
the period from 2018 to 2022. Consequently, CKD assemblers and car producers do not only
comply with the Decree 116 but also must increase their production volume, improve technical
quality and furthermore level up localization rate of CKD to meet the legal requirements of
Decree 125.
25 | CBRE RESEARCH © 2018 CBRE, Inc.
Government Regulated Timeline for Upgrading CKD Production Quantity and Technical Standards Vietnam Automobile Market Share

100%
90% 27.0% 27.0% 26.1% 28.8% 30.8%
80%
70%

Market share
10.5% 9.9% 10.7% 11.4% 7.7%
60%
Effective time length of the Decree 125 is considered quite short
50% 24.6% 21.6% 21.1%
and fairly rush for local assemblers and manufacturers to exploit 30.8% 24.1%
its benefit. Based on the regulations and manufacturing capability 40%
of assemblers, only three automobile corporations can fulfil the 30%
producing conditions in the meantime. They are THACO Group, 20% 38.6% 41.6% 35.8% 40.5%
31.7%
Toyota Vietnam and Hyundai Thanh Cong which are major players 10%
in the market. In term of sale unit (including all type of car), THACO 0%
• General minimum volume: 13,500 units
accounts for average 38% of Vietnam automobile market while 2014 2015 2016 2017 7M 2018
• Specific type minimum volume: 8,500 units
Toyota Vietnam stands in the second with approximate 25% of
• Emission standard level 5 (EURO 5)
market share. THACO Toyota Ford Others

Foreign automakers such as Toyota and Honda have been expected Source: Vietnam Automobile Manufactures’ Association

• General minimum volume: 8,500 units
• Specific type minimum volume: 3,500 units
• Emission standard level 4 (EURO 4)
2019
to withdraw from or at least reduce production scale in Vietnam.
2022 Alternatively, they are going to switch their business strategy to
CBU trading rather than automobile assembling. They invested Because of the new regulation, demand for factory expansion as well as logistic infrastructure area of 91,000 sqm located next to Toyota’s Vietnam current site will be leased for developing
significantly into factories in Thailand and Indonesia to make development is increasing rapidly. The application of the new decrees has pushed their new factory. The new production line is designed to increase Toyota’s manufacture

use of ATIGA’s regulations. Furthermore, assembling cost of an
• General minimum volume: 8,000 units automobile unit in Vietnam is higher than that of Thai or Indonesian
• Specific type minimum volume: 3,000 units
factories due to a very low localization rate. The Decree 116 almost
2018
manufacturers into a race of increasing production scale. Furthermore, Vietnam automobile capacity to 90,000 units per year in 2023. The factory upgrade is a surprised action from
market is still highly potential regarding market scale and consumer demand. As a result, Toyota Vietnam as they were expected to narrow production scale and switch to focus on
manufacturing expansion is inevitable. It is not only about compliance issue but also about CBU trading. Mitsubishi cannot stand out of the race by declaring that they are looking

• Emission standard level 4 (EURO 4)
shuts the door for CBU into Vietnam in the first three months of
2018. Likewise, Decree 125 is considered as a leverage for the
=>CREATE INCREASING DEMAND FOR INDUSTRIAL LAND domestic industry by using tax incentive methods. In general, neither
changes in policy nor in business strategy can prevent the ambitious
automakers from trying their best to dominate a very fast-growing
Source: Decree 125/NĐ-CP/2017
automobile market.
strategically investment plan.
THACO recently launched two of its large factories located in Chu Lai - Truong Hai Complex
(Quang Nam province). The first one is Mazda-car-manufacturing factory (Phase 1) that
delivers to the market 50,000 units/year. It is the most modern Mazda-car-manufacturing
factory in South East Asia and acquires a land area of 300,000 sqm. The second launched
factory is Bus THACO with designed capacity of 20,000 units per year. The addition of new
factories has strengthened THACO’s dominance of the market. Toyota Vietnam also deployed
expansion plan of its current automobile factory in Vinh Phuc province. Under the plan, a land
for a suitable location for building their second factory in Vietnam with designed capacity
up to 50,000 units/year. The most notable factory opening obviously belongs to VinFast
(the newborn automobile arm of Vingroup). Vingroup, a Vietnamese real estate and retail
conglomerate, has shown its huge ambition in producing the very first Vietnam branded car.
Accordingly, they deployed construction of their mega automobile complex in Dinh Vu - Cat
Hai Industrial Zone (Hai Phong City) since September 2017. The complex has been built in a
land area of 3,350,000 sqm. Designed capacity of factory is 250,000 units per year in Phase
1 and will be leveled up to 500,000 units per year in Phase 2.

VIETNAM INDUSTRIAL REAL ESTATE MARKET | 26 27 | CBRE RESEARCH © 2018 CBRE, Inc.
Automobile Manufacturing Expansion Across Vietnam

2018
Vinh Phuc • Toyota Vietnam asked for
TOYOTA 9.1ha land leasing to expand
Hai Phong its current factory

March 2018 Ninh Binh • Designed capacity: 90,000

units/year (2023)
• Launching new Mazda factory THACO
TRUONG
• Designed capacity: 100,000 HAI AUTO March 2018
units/year
• MOU signing ceremony for Hyundai
• Land area: 300,000 sqm automobile manufacture expansion
in Ninh Binh province. The second
factory of Hyundai will be
HYUNDAI constructed soon.

• Designed capacity: 200,000 units/

December 2017 Quang Nam
year (2021)
• Launching new Bus THACO • Land area: 1,000,000 sqm
THACO factory TRUONG
HAI AUTO
• Designed capacity: 20,000
units/year September 2017
• Land area: 300,000 sqm • VinFast deployed construction of its
automobile manufacture complex in
Dinh Vu – Cat Hai Industrial Zone
VinFast (Hai Phong City)
January 2018 Long An
• Designed capacity: 250,000 units/year
• Mitsubishi declared that (Phase 1) and up to 500,000 units/year
they are going to build (Phase 2)
their second automobile in
Vietnam after the first factory MITSUBISHI • Land area: 3,350,000 sqm
in Binh Duong. MOTORS
• Designed capacity: 30,000 –
50,000 units/year

VIETNAM INDUSTRIAL REAL ESTATE MARKET | 28

 The incredible growth of the regional automobile industries has been achieved thanks to
strong and dedicated support along with domestic protection policies of the governments.
From real estate perspective, policy changes in relation to the automobile industry as well
as the huge potential of the four-wheel-vehicle itself is creating opportunities for acquiring
more land leasing enquiries in a wide range of sector not only for industrial manufacturing
but also for commercial demand such as opening showroom, car garage and warehouse.
However, real estate also has its effect on the automobile industry development. The role
of industrial real estate developers herein is much emphasized as they provide not only
land bank and infrastructures for automakers but more important a solution of industrial
manufacturing organization.

Accordingly, high production cost and low localization rate issues are partly solved by
clustering automobile-related companies in a specialized industrial complex where all
segments of manufacturing chain are linked together in term of geographical location
as well as value chain. In Vietnam, even though the automobile industry is far behind in
developing production and assembling with other ASEAN countries, but industrial land

OPPORTUNITIES FOR accumulation for automobile industry has been observed in the market. Chu Lai - Truong
Hai Automobile complex in Chu Lai Open Economic Zone of Quang Nam province

INDUSTRIAL REAL ESTATE is a very well-known example. Recently, opening of VinFast automobile and electric
vehicle manufacturing complex in Dinh Vu - Cat Hai Industrial Zone, Hai Phong City is
another notable example. Both VinFast and THACO have shown their huge ambitious in
dominating the domestic market by acquiring mega industrial land bank for purpose of
building their own fully integrated manufacturing complex. Furthermore, their ambitious of
going beyond Vietnamese border for made-in-Vietnam cars has been strongly supported
by favor natural conditions for building a network of deep sea ports.

Vietnam automobile industry has still a lot to do to step in its golden time and overtake
its regional rivals. The role of policy makers is considered as the most important, but
the industry needs more than that. A win-win relationship herein can be set up for both
the government and real estate developers. Authority nurtures the domestic industry
by releasing protective policies and at the same time bring chances for industrial land
developers to exploit the expansion of manufacturing as well as business demand. Real
estate developers, on the other hand, offers not only for government but also automakers,
logistic service vendors solutions for clustering production and supply activities into
specialized automobile manufacturing complex.

31 | CBRE RESEARCH © 2018 CBRE, Inc.

Density of Automobile Plants of Vietnam Number Of Automobile Plants in Vietnam

There are 451 automobile plants in Vietnam including CKD assembling and auto part making
Number of plant (Martin SCHRÖDER, 2017). Presence of these plants is in all three main regions of Vietnam but not Province/City Number of plants Province/City Number of plants
122 equally distributed. Approximate 61% of production lines located in the North and mainly in Hanoi,
Hanoi 122 Da Nang 11
Hung Yen, Vinh Phuc and Hai Phong where most of very well-known OEMs place their factories
such as Toyota, Honda, Ford. The South accounts for a bit more than half of total automobile Vinh Phuc 34 Quang Nam 2
plants. Ho Chi Minh, Dong Nai and Binh Duong are preferred location of automakers in the South.
On the other hand, Central region is the least developed region for car assembling and auto part Hung Yen 29 Dong Nai 58
manufacturing. It should be noticed that most of assembling and production lines are distributed Ho Chi Minh 43
Hai Phong 26
in industry-oriented provinces/ cities, but they are not well organized and located in automobile
specialized industrial zone/ cluster. Bac Ninh 25 Binh Duong 42
1
Hai Duong 10 Long An 10
Along with the new launched VinFast Automobile Complex in Dinh Vu - Cat Hai Industrial Zone (Hai
Phong City), Chu Lai - Truong Hai Automobile Complex in Chu Lai Open Economic Zone (Quang Ha Nam 9 Ba Ria - Vung Tau 2
Nam province) is one of the largest and most modern car manufacturing complexes in Vietnam. It
is easily observed that these automobile complexes are in the North and Central region of Vietnam. Thai Nguyen 8 Binh Phuoc 2
The South, meanwhile, does not have any similar scale automobile manufacturing complex. Most of Ben Tre 1
Bac Giang 7
automobile assembling and auto part factories/ warehouses are placed in multi-industry industrial
parks. In addition, production scale of each factory is also small and proportion of automobile- Hoa Binh 2 Khanh Hoa 1
related factories in industrial zone is relatively low. Mechanic and automobile-related companies
Quang Ninh 2 Tay Ninh 1
accounts for approximately 15% of total tenant in industrial zones of Binh Duong and Dong Nai.
HCMC has the highest rate of mechanic and automobile-related tenant among Southern provinces Thai Binh 2 Tra Vinh 1
(about 23%). Meanwhile, Long An’s figure is the lowest.
Nam Dinh 1 Total 451

Source: Viet Nam’s Automotive Supplier Industry: Development Prospects under Conditions of Free Trade and Global Production Networks, Martin SCHRÖDER*

Source: Viet Nam’s Automotive Supplier Industry: Development Prospects under Conditions of Free Trade and Global
Production Networks, Martin SCHRÖDER*

VIETNAM AUTOMOBILE INDUSTRY | 32 33 | CBRE RESEARCH © 2018 CBRE, Inc.

Proportion of Tenant by Industry in Southern Industrial Zones

More land enquiries have been generated from other auto part makers such The Central region, on the other hand, is the least developed area of the industry. Da Nang city and
Dong Nai as ISI form Europe with land area of 10,000 sqm – 25,000 sqm for equipment Quang Nam province are areas where density of automobile manufacturing factories is relatively
manufacturing in North Vietnam and Adient (USA) with 2000 sqm for automotive high in the Central region. However, Central region also plays an important role in the Vietnamese
seating in the Central of Vietnam. Southern region accounts for about 43.16% per Automobile Industry. Chu Lai - Truong Hai Automobile Complex is developed by THACO group
Long An year of total automobile sale of Vietnam, but the production scale and capability as a full integrated automobile complex including manufacturing factories, assembling factories,
of Southern area (including HCMC, Dong Nai, Binh Duong and Long An) is much supportive-industry factories, warehouses and dedicated deep sea port. The supreme purpose of
smaller than that of the other regions. Besides, Ho Chi Minh along with Hai Phong establishing automobile manufacturing complex like what VinFast and THACO have done so far is
Binh Duong are main import hubs of CBU in Vietnam. increasing localization rate and consequently cutting off production cost. Therefore, industrial land
and infrastructure development demand for each region of Vietnam should be based on production
Consequently, commercial and warehousing land demand (showrooms and and market nature to attract suitable investment.
HCMC
warehouse) can be preferable in the Southern provinces and cities. Meanwhile,
the assembling cluster is mainly distributed in the North with a network of
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% foreign OEMs factories as well as auto part manufacturing facilities. Industrial Automobile Sales Proportion by Region
manufacturing and assembling of the North area has been accumulated thanks
also to the long establishment of the industry in this region. Hanoi, Hung Yen, 100%
Others (label, wood, services…) Mechanic Appereal 13.2% 12.4% 11.7% 11.6% 14.0%
Vinh Phuc and Hai Duong are very well known for their factories of OEMs such 90%
Chemistry F&B Construction and infrastructure as Toyota, Honda in Vietnam. Recently, VinFast launched its mega automobile
80%
Electric, electronic Automobile or auto part manufacturing complex in Hai Phong city with five specialized component zones
(R&D zone, Automobile Manufacturing zone, Motorbike Manufacturing zone, 70%
42.1% 41.5% 42.9% 45.4% 44.0%
Source: Industrial Zones Management Board of HCMC, Dong Nai, Binh Duong and Long An province. Training zone and Localization zone). The VinFast factories establishment has 60%
strengthened the automobile assembling and manufacturing platform of the North
50%
region. Accordingly, with a strong base and rich history of car assembling and
auto part production, the demand of large industrial land bank for manufacturing 40%

Per industrial land supply, four Southern industrial centers including HCMC, Binh Duong, Over the last three years, many successful transactions for industrial land leasing has factories is worth considering in the North region. 30%
Dong Nai and Long An currently offer about 41,868.37 hectares of industrial land to been recorded in the South region and most of them belongs to accessories makers for 44.7% 46.1% 45.4% 43.1% 42.0%
20%
the market, of which Dong Nai accounts for 48.72% of total supply. The occupancy rate manufacturing expansion:
of Sothern industrial zones is also high and approximately from 80% to 95%. Regarding • Camoplast Solideal, Europe made a land acquisition of 70,000 sqm for automobile 10%
automobile manufacturing expansion, the land bank required for building factories and tire production in South Vietnam 0%
related infrastructures, including warehouse and car testing road is normally large to install • Yazaki, Japan made a land acquisition of 39,000 sqm for their automotive electrical 2014 2015 2016 2017 7M 2018
specialized production line and satisfy safety regulation. Besides, auto part making factories cables factory in South Vietnam
North sale South sale Central sale
does not acquire that much land bank as car assembling/ manufacturing ones. Nonetheless, • Schaeffler, Europe acquired 55,000 sqm land area to develop automotive bearing
due to the large amount of auto parts for assembling car, manufacturing complex of these production in South Vietnam
Source: Vietnam Automobile Manufactures’ Association
kind of factories comprises quite a lot of number of small factories and preferably placed by • Mercedes, Europe also leased 5500 sqm land area for their Parts Distribution Center,
cluster. Hence, Sothern industrial zones need to increase their limited land bank as of now for South Vietnam
catching up with growing manufacturing demand. • Federal Mogul, 5000 sqm, Automotive seating, North Vietnam
  • Bentley, 5000 sqm, Showroom & Service Center, South Vietnam

VIETNAM INDUSTRIAL REAL ESTATE MARKET | 34 35 | CBRE RESEARCH © 2018 CBRE, Inc.
 Chu Lai – Truong Hai Automobile Complex (Chu Lai Open Economic Zone) – Transportation Infrastructure

Chu Lai – Truong Hai Sea Port

Chu Lai - Truong Hai Automobile Complex

KEY TRANSPORTATION
INFRASTRUCTURE OF
INDUSTRIAL ZONES
National Road 1A

National Railway
Da Nang – Quang
Ngai Expressway Chu Lai Airport

Source: CBRE Vietnam

37 | CBRE RESEARCH © 2018 CBRE, Inc.

Deep C Industrial Zone – Transportation Infrastructure Deep C Industrial Zone – Lach Huyen Deep Sea Port

Lach Huyen Deep

To China Sea Port –
(Hai Phong)
To China Hai Phong
• Draft: -14m CD
7KM
• Singapore: -16m
Hai Phong
• Yokohama: -16m
7KM • Ho Chi Minh - 12
Cat Bi 2KM
International • Busan: -15m
Airport
• Hong Kong: -15.5m
• Vessels: up to
Cat Bi 2KM 100,000DWT – TEU
International
+/-10.000
Airport
Hai Phong – • Inauguration: 13 May
Hanoi New 2018 (first 2 berths)
Highway Lach Huyen • No more
Tan Vu – Lach Deep Sea Port transshipment
Huyen Road required when
shipping to Europe,
Hai Phong – reducing lead time,
Hanoi New Source: CBRE Vietnam stock level and costs
Highway
Lach Huyen
Tan Vu – Lach Deep Sea Port
Huyen Road Tan Vu – Lach Huyen Bridge
• Total length: 15.6km, bridge length: 5.44km
• Operational: September 2nd , 2017
Source: Deep C Industrial Zone

VIETNAM INDUSTRIAL REAL ESTATE MARKET | 38 39 | CBRE RESEARCH © 2018 CBRE, Inc.
 Domestic policy changes in relation to Vietnam Automobile Industry has affected
significantly the car market. The main purpose of new policies is enhancing and
supporting the Vietnamese car manufacturing industry by applying legal criteria to expand
production scale and improve quality of domestic products. Furthermore, the Vietnam’s
automobile market is still very potential and driven by positive macro-economic conditions.

CONCLUSION
Accordingly, the industrial real estate developers will mostly benefit from increasing
industrial land demand of manufacturing and business expansion of automakers and
distributors. In addition, the lack of large specialized automobile complex zones will create
opportunity for developers to exploit the benefits. Hence, the developers also play an
important role in developing the domestic automobile industry by providing specialized
and comprehensive infrastructures accompanied with land bank to automakers to create
dedicated automobile manufacturing complex.

41 | CBRE RESEARCH © 2018 CBRE, Inc.

 1. Martin SCHRÖDER, Viet Nam’s Automotive Supplier Industry: Development Prospects
under Conditions of Free Trade and Global Production Networks, 2017

2. Indonesia Investment, Automotive Industry Indonesia: Sales, Production,

Export & Import by Gaikindo, 2018

3. Thailand Board of Investment, Thailand’s Automotive Industry –

REFERENCES The Next-Generation, 2015

4. Thailand Board of Investment, Opportunity Thailand, 2017

5. Ministry of Industry and Trade of Vietnam, Data collection and Investigation on Vietnam
Auto Part Manufacturing Industry, Summary Report by Japan International Corporation
Agency (JICA) and Deloitte Tohmatsu Consulting, 2017.

43 | CBRE RESEARCH © 2018 CBRE, Inc.

 Abbreviation Term

CBU Complete Built-Up

CKD Complete Knocked-Down

CAGR Compound Annual Growth Rate

GDP Gross Domestic Product

ABBREVIATION FDI Foreign Direct Investment

ASEAN Association of Southeast Asian Nations

VAMA Vietnam Automobile Manufacturers’ Association

OEM Original Equipment Manufacturer

DWT Deadweight Tonnage

TEU Twenty-foot Equivalent Unit

45 | CBRE RESEARCH © 2018 CBRE, Inc.

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