Mega-Project Mania: Vietnam’s Industrial Land Dilemma | Tractus

This article is part of a series exploring Southeast Asia’s industrial zone landscape. For a comprehensive global overview, refer to our Thailand’s mega-sites review.

Finding the optimal mega-site often requires making complicated tradeoffs

The world is experiencing a boom of mega-project investments. In 2022, the number of +US$1 billion investment projects rose 140% from 2021 levels to a total of 159, the highest number ever recorded, and 2023 is on a similar pace.  Companies in strategic sectors, from renewable energy to semiconductors, are major contributors to the increase as globalization gives rise to regionalization. Corporate location strategies are now focused on regionalizing and near-shoring investments, mitigating risk from existing China operations, and establishing facilities in markets that offer preferential incentives and strategic advantages balanced with competitive costs and operating conditions.

While mega project announcements in the United States, Middle East, Japan and Korea dominated the investment press in 2022 and into 2023, Vietnam, known as a low labor cost manufacturing location, is experiencing its own surge in mega projects. Recent investments have seen the Lego Group invest $1.2 billion in a 44-hectare site in Binh Duong, Amkor invest $1.6 billion in a 25-hectare site, and Samsung invest an additional $920 million in its 100-hectare facility, while BYD is searching for 80 hectares of land to expand its facilities in the country. Investments from leaders in electronics and electric vehicles into Vietnam will also attract competitors and suppliers to the market.

All investors will be confronted with the challenge of securing land. There is a limited supply of industrial land that has been acquired and consolidated with clear title and utility infrastructure to support manufacturing investments of mega-project scale in industrial zones across the northern, central and southern regions of the country. Tractus’ experience advising industrial site-location strategies captured these challenges in our 2021 article “Growing Pains: Vietnam’s Industrial Real Estate Conundrum”, and recent projects found that the challenges persist.

Vietnam has approved the establishment of 397 industrial zones throughout the country, of which 292 have the permits and infrastructure to receive investment—a slight increase from 284 zones in 2021. Another 30 zones are scheduled to become active within the next two years, but this schedule is dependent on acquiring and consolidating land and building the necessary infrastructure, which in Vietnam is notoriously prone to delays. The supply of industrial land that is shovel-ready for investment has therefore increased minimally since 2021, while Vietnam continues to attract new investments at a rapid pace.

Occupancy remains high in industrial zones throughout the country. The 145 zones in Vietnam’s Northern Region have an average occupancy rate of 77%, and the occupancy rate in the 186 zones in the Southern Region is 85%. Industrial zones located in the Central Region have the lowest occupancy rates at 65%, but this region is also the least developed in the country, lacking natural gas and the industrial supporting infrastructure that North and South Vietnam provide to investors.

A recent site-selection assignment that Tractus conducted for an investment in the electric vehicle battery materials value chain determined that, of the 92 zones in Vietnam that could welcome the industry, only 13 could provide a plot of 50 Hectares (Ha) with immediately titled and transferable land. This included 6 zones in the Central Region, 5 in the Southern Region, and 2 in the Northern Region.

Land that is offered to investors is, however, often a patchwork of small plots that developers will propose to be integrated into a larger contiguous plot to meet investor needs. This creates risks to the investment and schedule. The land usage rights being offered may not be secured by the developer or they may not have the proper approvals and permits including environmental, investment and zoning, which are needed before land can be sublet to an investor. Completing the land acquisition for a zone typically takes 2-3 years if no significant issues are encountered in the process. Investors need to do their homework to confirm there is proper documentary evidence to support the claims of the developer—whether it is a private firm, joint venture with the government or government-owned—before advancing sites to a short-list. Conducting preliminary due-diligence on the land in the early stages of a site-selection to ensure the developer has obtained the proper approvals and permits for the plot(s) being offered mitigates this risk, which is significant in Vietnam. 

Vietnam has experienced tremendous demand for industrial land that has attracted prominent developers, both foreign and domestic, to establish industrial zones throughout the country. While it may appear that zones owned by joint venture or foreign owned developers present fewer risks, this may not be the case. Zones with more available land and larger plots may lack the developed infrastructure that mega-projects require, including substations, natural gas infrastructure, or wastewater treatment facilities. It is also common to find that zone management will tell the investor that they need to manage the process of applying for connections and negotiating rates for natural gas, electricity, and water directly with the utility providers. This significantly complicates the investment execution and introduces risk to the project development schedule. However, with a mega-project, identifying the optimal site will require that an investor make difficult decisions, balancing multiple important factors and risk. Tradeoffs may need to be made between land requirements and utility needs, location, status of the zone infrastructure development and permitting and schedule risk. When the optimal location requires choosing a zone that is still in the land acquisition and permitting stages of development, developer’s permitting and licensing status are considered closely held information and typically not disclosed readily. In these cases, it is critical to undertake independent detailed due diligence and understand the status of the developer’s permitting process and timeline to corroborate the information they have provided.

As companies continue to diversify their supply chains and de-risk their investment exposure to China, Vietnam will continue to be on the short-list of companies planning investments of mega-project scale. Its location, productive workforce, and developing clusters in key industry sectors make it attractive to consider, but identifying sites that can accommodate mega-projects is challenging. Companies need to use a systematic and disciplined approach to identifying a short-list of sites that are evaluated against one another in an objective way to make a defensible decision on the optimal site.

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Authored by

James Meisenheimer, a Consulting Manager based in our Thailand office; and Dennis Meseroll is our Executive Director.