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Viet Nam
Industrial Park Situation
Text by Saito Hiroshi
The 20th: About the 20th BTS (Build-to-Suit)
When manufacturing companies expand into Vietnam, it is generally common for them to either purchase land in an industrial park and construct their own factory, or to rent space in a rental factory. However, this time I would like to introduce a new concept called BTS (Build-to-Suit), which is a customized rental factory (warehouse).
1. What is BTS (Build-to-Suit)?
BTS (Build-to-Suit) is a type of commercial real estate leasing where the landowner (industrial park developer) agrees to construct a real estate property (warehouse or factory) according to the requirements of the tenant. In a BTS arrangement, the developer fully covers the construction costs of the property, and upon completion, the tenant enters into a 10-20 year lease contract to pay the developer a combined amount for the land and construction costs in installments.
Typically, the tenant has the option to extend the BTS lease contract upon its expiration. Additionally, the tenant can also purchase the property during the BTS lease period.
2. Benefits of BTS:
<Tenant side>
1. Customized Specifications: The tenant can have the property built according to their exact requirements, including the size, appearance, layout, and other details.
2. Reduction of Initial Costs for the Tenant: Since the land cost and construction expenses are initially covered by the developer, the tenant can benefit from reduced upfront investment.
3. Tax Benefits: The monthly lease payments made by the tenant can be fully deducted as a business expense, providing tax advantages.
<Developer side>
- The tenant is already secured before the property is even constructed.
★ There is no risk of the rental factory/warehouse being constructed without a tenant secured.
3. Business types suitable for BTS:
＜For warehouse use＞
1. For franchise-based businesses: such as fast food chains and pharmacy chains
2.E-commerce:
3. Mall
＜For factory use＞
- For manufacturing industries where the specifications, such as ceiling height, floor load capacity, and other requirements, cannot be met in standard rental factory properties.
- In the case of large-scale (1 hectare or more) factories where the initial investment cost exceeds 1 billion yen.
4. BTS lease period and deposit:
1. Decision factors:
- For properties with specialized specifications, it can be more difficult to find the next tenant if the current one leaves.
The lease period becomes longer (10 years or more).
- ロケーション：市内に近いなど便利な場所だと次のテナントが見つかりや
Location: If the property is in a convenient location, such as near the city center, it will be easier to find the next tenant, so a shorter lease period is not an issue. (As seen in the Shopee example)
2. Example of Deposit:
- For shorter lease periods (3-5 years): Deposit equivalent to 6 months’ rent.
- For longer lease periods (10 years or more): Deposit equivalent to 1 year’s rent.
5. Cautions regarding BTS (Build-to-Suit):
＜Developer side＞
★ It is necessary to thoroughly examine the tenant’s financial condition. If the tenant goes out of business midway through the BTS lease period, there is a risk that it will be impossible to recover the remaining payments.
6. The benefits of BTS (Build-to-Suit) for Japanese companies:
1. In the current situation of a persistently weak yen, the cost burden is large when making overseas investments in foreign currencies, but by utilizing BTS, long-term installment payments become possible, allowing the impact of the weak yen to be minimized.
2. If business performance is good after establishing operations locally, it also becomes possible to purchase the land and building, which can help reduce the risks of the overseas investment.
3. In Vietnam, acquiring land and constructing factories and warehouses is complicated and not easy due to the cumbersome licensing application procedures. However, by utilizing BTS, the developer can handle those procedures on behalf of the company, allowing for a smooth application process and the ability to commence operations earlier.
齊藤公(Saito Hiroshi)
Business Advisor
G.A. Consultants Vietnam Co., Ltd
After graduating from university, he joined a PHP research institute and served as the head of the New York office. He then worked on the “Nagoya Port Redevelopment Project” at a subsidiary of the Chubu Nippon Broadcasting (CBC) company. He later shifted his base to Asia, where he was involved in the launch of “FM96.3” in Singapore, and the creation of “Hello Vietnam” and “Invest Asia” magazines in Vietnam. He then joined BW Industrial Development JSC, Vietnam’s largest rental factory development company, where he was responsible for attracting Japanese manufacturing companies. Currently, he is active as a consultant for the entry of Japanese companies at “G.A. Consultants”, one of the longest-standing Japanese HR consulting firms in Vietnam.
