VIETNAM MARKET REPORT - Q2.2021

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COVID-19 continues to bite.  However, with a strong domestic economy that is outperforming the region, and the wealth buildup of the general population then most property asset classes are showing remarkable resilience.  

A new government that has signaled strong business intentions, a dynamic legal environment, good infrastructure spend and the young ambitious workforce, all contribute to the optimistic mid-term outlook for Real Estate. 

Our Q2 Market Briefings focus on Hanoi and HCMC across the six key asset classes; Retail, Office, Apartment, Service Apartment, Hotel, Villa & Townhouse.

HCMC

Retail

Modern retail occupancy remains sound with a slight increase of 1ppt QoQ to 94%, average retail rents decreased by 1% QoQ to US$50/sqm/month gross. Street shops are suffering mixed fortunes.

Retailers are cautious in opening new stores. F&B is mostly staying put, and positive on a H2 recovery are preparing new concepts.  Consumer confidence is beginning to decline, as job losses and lower disposable incomes bite.  
With low growth in regional markets and confidence in Vietnam, then many foreign brands are pursuing more active FIE positions

Tran Pham Phuong Quyen, Manager, Retail Leasing, Savills HCMC 

Apartment

There is very limited supply, with a massive decrease -25% QoQ.  There have been very few project launches, a low inventory and 10 projects currently on hold. Ho Chi Minh City has also seen the lowest sales and absorption in 5 years at 36%, dropping -5%ppt QoQ.

Wealth is growing, evident in new stock exchange accounts and demand for residential.  However, there is a lack of current supply that is pushing prices.  Investors may feel the pinch of the long term Covid-19 softening. Vacancies have increased slightly, with a minor rental reduction, but a 2% value escalation.  The much-anticipated launch of Masterise Grand Marina is getting closer, a bellwether for high end pricing.

Vo Thi Khanh Trang, Research Associate Director, Savills HCMC 

Serviced Apartment

Unsurprisingly the disruption of COVID-19 has resulted in a decrease in stock –1% QoQ and –3% YoY.  The average rental rate decreased further -4% QoQ, with mostly Grade B dragging the average down, offering discounts and incentives for longer term contracts. 

COVID-19 has impacted the sector, however not to the extent first thought. Overall SAs are showing remarkable resilience, mostly through captive long-term contracts.  FDI commitments remain sound, that will convert to demand in the near-term.

Troy Griffiths, Deputy Managing Director, Savills Vietnam

Office

Decentralization continued this quarter with non-CBD stock increasing 22% YoY.  New supply came from projects in Binh Thanh and District 7. Occupancy remains high at 90% whilst rents remained stable at US$31/sqm/month gross.

Office demand remains solid with strong enquiry from Finance, Education and Technology sectors, with larger requirements above 5,000sqm and aiming to occupy by end of 2021. The pandemic has crystallized the working from home trend in Vietnam. 
The next major supply of A grade space is 2023, in the meantime decentralized supply is sufficient for natural absorption levels.

Tu Thi Hong An, Commercial Leasing Director, Savills HCMC

Hotel

Many mid-range hotels are now used for quarantine, that helps a troubled asset class.  The overall occupancy sits at 18% a slight increase this quarter of 1ppt.

Performance is slightly inflated as many mid-range hotels have been secured for quarantine facilities.  Overall, the sector continues to suffer, however is very well positioned regionally for post Covid-19 revenge travel.

Cao Thi Thanh Huong, Research Manager, Savills HCMC

Villa & Townhouse

With limited new supply and a depleted inventory, then there were price increases of 20% YoY in D7 and 13% across the constant basket.  Primary supply was at its lowest for 5 years, Shophouses continue to find favors.

Historically low supply has driven inevitable price increases, that has spilled to neighboring provinces.  With the new government formalized then the near-term hope is for more approvals that will answer the supply shortage.  Future supply is so far evenly dispersed, providing an array of location choice.

Vincent Nguyen, Director of Residential Sales, Savills HCMC

HA NOI

Retail 

Stock remained stable this quarter at 1.6 million m2, with a slight decrease in occupancy.  Luxury brands now have confidence in Vietnam and are looking mid-term, with Tiffany & Co and Porsche Studio opening recently. 

The current outbreak has slowed retail demand. Most brands have delayed expansion until the situation improves. Many brands especially F&B, have managed well with online sales and delivery services, helping prop up occupancy.

Hoang Nguyet Minh, Director, Commercial Leasing, Savills Ha Noi

Office

Strong demand for CBD based buildings has meant rents remain high and have pushed up slightly YoY by 4%.  The Metro lines will assist in promoting decentralization, particularly to the Mid Town precinct where there is good quality supply. 

Over the last 6 months new building lease ups have fared well, including  Captial Place,  Leadvisor  Tower,  Thaiholdings  Tower and Century Tower. Small tenants tend not to move whilst the larger tenants with longer business horizons may plan for expansion.

Hoang Nguyet Minh, Director, Commercial Leasing, Savills Ha Noi 

Apartment

Limited supply in Ha Noi has resulted in the average primary price of US$1,625/m2, increasing by 7% QoQ and 11% YoY. CoVid has also decelerated planned projects, with developers scaling back launches, which has seen primary stock decease by 13% QoQ and 27% YoY.

The strong infrastructure development narrows the price gap between urban and surrounding areas. The inner-city zoning plan has the goal of reducing the area’s population, it confirms the decentralization while creating conditions for renovation, and upgrading, as well as creating high-end products.

Do Thu Hang, Senior Director, Advisory Services, Savills Ha Noi 

Serviced Apartments

The West Lake area is progressing with a large supply increase 20% YoY.  There are 19 future projects planned, that will continue to lift the quality of stock. 

The recent increase in industrial development in Bac Giang, Thai Nguyen and Hai Dong promotes future supply in the belt areas of Hanoi, with easy access to these areas. Large investors and operators are positioned early.

Matthew Powell, Director, Savills Ha Noi 

Hotel

The fourth wave of Covid-19 resulted in a decline in occupancy of 27% QoQ, however YoY it has increased by 6%, due to social distancing policies eased against the previous year.  There are 14 projects underway to launch up to 2023.

The Ha Noi hotel sector is presently surviving with an occupancy across the city of only 25%. There are high hopes for ‘revenge hospitality’ as vaccine roll outs progressively permit boarders re-opening. In the US hoteliers are struggling under the whiplash of high demand, then patron’s expectations are also high. Vietnam is well positioned to absorb this return to normality shocks.

Matthew Powell, Director, Savills Ha Noi  

Villa & Townhouse

The average primary villa price was up 10% QoQ and 3% YoY, whilst townhouses increased 11% QoQ and 16% YoY. High demand for primary areas with imbalanced supply, plus upcoming infrastructure completions have driven escalations.  

Globally, rural and decentralized property has seen strong demand. This is a direct response from the COVID surge to move from high density cities as we as take advantage of the flexibility that Work From Home (WFH) offers. Ha Noi  is decentralizing, however less from these international trends, and more from price and infrastructure drivers. We do expect to see greater interest in landed properties, provided prices remain within reach.

Matthew Powell, Director, Savills Ha Noi