Industrial property sector: The tide subsides

• 3Q22 average rental price increased by 10%-12% yoy, given high demand but limited supply.
• We see industrial property will slowdown following rising competition from Indonesia and delayed legal procedure which will shrink new supply.
• Our stock picks for long-term investment are PHR and BCM.

Southern market: Ba Ria – Vung Tau is IP hotspot
After supply boomed in 1H22, Southern industrial market did not have any new project put into operation 3Q22. 9M22 total industrial land area rose by 9.2% yoy to c.41,950ha, leading to the 8.2% yoy increase in leasable area (c.27,950ha). Besides, we see a strong new warehouse (WH) and ready-built factory (RBF) supply was put into operation in 3Q22, leading to a 30.2%/27.7% yoy increases in total supply, respectively. Average occupancy rate and rental price raised by 1.3% pts to 85.2% and 10.0% yoy to US$125/sqm/lease term given high demand but no new supply in 3Q22.

Northern market: Rental price climbed to new high
Similar to the Southern market, there is no new industrial park coming into operation in Northern market in 3Q22. For 9M22, total land area rose by 2.7% yoy to 16,072ha. Due to no new supply in 3Q22 and limited supply in 9M22, 3Q22 occupancy rate increased by 4.7% pts yoy to 80-82%. For WH and RBF market, new supply rose by 39% yoy to 1.4m sqm and 9.5% yoy to 2.3m sqm, respectively, in 9M22.

2023F outlook: the tide subsides
We see that the positive factors for industrial property are fading due to: 1) slowdown FDI inflows (9M22 registered FDI dropped by 15.3% yoy) causing by investors’ cautious sentiment toward the risky global economic recovery and FED raise interest rate may have an impact on FDI inflows into Vietnam; 2) new supply is tightened by legal procedure delay. We believe that industrial property market will see a scarcity of new supply from now through the end of 2023F in both the South and the North.

Our stock picks are PHR and BCM while NTC is in watchlist
Despite facing many difficulties, industrial property sector still has potential growth from WH and RBF thanks to E-commerce boom leading. We believe developers owning existing land bank will enjoy this trend the most. Following that, we like PHR and BCM for long-term investment. Downside risks come from: 1) prolonged the legal procedure approval time, 2) increasing competition from regional peers and 3) increasing land compensation could make slow process, driving up investment cost and land rental prices.

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