HCMC Office Market – 07 July 2020 –
The prolongation of COVID-19 has challenged the recovery of economies in the Asia-Pacific region as well as Vietnam. Though the office market of HCMC did not record significant impacts of the COVID-19 in Q1 2020, it started to witness more vivid reactions from tenants in Q2 2020 when their revenues for H1 2020 plunged significantly. With many tenants going through a period of economic uncertainty, some were forced to return all or part of their office space.
While there was no new supply in HCMC office market in Q2 2020 (supply remained at 1,370,814 sqm NLA), new leasable office area in 2019 and Q1 2020 have not been fully absorbed by the market. Grade-A buildings were impacted stronger than Grade-B buildings. The average rent of Grade A was US$44.4 psm pm, down 4.9% y-o-y and vacancy rate increased by 9 ppts y-o-y, reaching 11.8%.
As many tenants have been planning to either contract their office space in current buildings or relocate to buildings with lower cost, located at the edge of the CBD or sub-urban area, Grade B still recorded stable performance, especially buildings with rents of less than US$30.0 psm pm. In Q2 2020, vacancy rate of Grade B was recorded at 4.7%, a slight increase of 0.4 ppt y-o-y. Rent of Grade B reached US$25.3 psm pm, up 7.4% y-o-y due to the introduction of some new buildings from the previous quarters with good quality and higher rents compared to market average such as Sonatus Building and Friendship Tower.
The COVID-19 outbreak has changed the leasing tendancy of occupiers, particularly after the social isolation period in last March and April. Companies had applied work-from-home strategy to maintain the operation and they acknowledged that the productivity of employees were not affected when they worked at non-office spaces. Previously, employees were heavily relying on being in the office, however, they are now more flexible to work at different spaces. Hence, relocating office to the fringe-CBD is not as difficult as before. At present, some enteprises have also applied long-term work-from-home strategy of at least one day per week. Some have contracted spaces and relocated to buildings with cheaper rents.
In Q2 2020, the majority of leasing inquiries and transactions received by CBRE were for relocation purpose (accounting for up to 72% of the total inquiries and transactions), some of which were occupiers relocating from Grade A to Grade B segment or from Grade B to a lower-rent building. Expansion activities (20%) were still on-going at unaffected sectors such as Insurance, Healthcare/Pharmaceuticals, Retail/E-Commerce. Meanwhile, Finance/Banking and Fintech sectors have started to contract their spaces as these sectors were planning to restructure their office space usage to cut cost.
The construction of new office buildings in HCMC were still moving forward and more than 70,000 sqm NLA is expected to complete by the end of this year. Most of the new additions will concentrate in the East (Binh Thanh) and the South (District 7). Landlords of these upcoming buildings have proactively decreased asking rents by US$1 to US$3 psm pm compared to Q4 2019 to attract tenants. Though Vietnam has successfully controlled COVID-19, other regional countries are still struggling with the outbreak, impacting the leasing demand of office space in HCMC from foreign companies. The office rental rate of HCMC is expected to shrink by 8%-10% y-o-y (the expected drop in regional countries is from 8%-15%) and vacancy rate will increase by 7-9 ppts y-o-y by the end of 2020 due to new supply and the influence of COVID-19.
According to Ms. Pham Ngoc Thien Thanh, Associate Director, CBRE Vietnam: ”The changes of occupier leasing preferences are becoming more vivid. We expect that the market will see more relocation and contraction transactions in the year end. Thus, it requires landlords to have approriate solutions in short and long-term, and changes if needed to catch up with the occupier leasing preferences. Moreover, flexible workspace operators should be more prudent with their expansion plan at the moment, instead, they should put more focus on improving performance at the current centres by providing incentive packages, diversifying target tenants, especially to enterprise market”.
HCMC Retail Market – 07 July 2020 –
There was no new project in Q2 2020 in HCMC. In the non-CBD area, Vincom Megamall Thao Dien has added over 3,000 sqm on B1 floor to its NLA, which used to be utlized as office. As of Q2/2020, total NLA of HCMC retail market is 1,040,000 sqm, which has not changed significantly since the end of 2019.
Retail market of Vietnam, in general, and of HCMC, in particular, started to show signs of recovery, albeit at minimal level. According to Google Mobility Index, which used location data to estimate the level of footfall to shopping and retail centres, footfall has recovered up to 80% of the level seen in January 2020, one of the busiest retail months in Vietnam as consumers stocked up for Lunar New Year. However, according the HCMC statistics, total retail and service turnover decreased by 4% y-o-y. Tourism services was hit with the biggest decrease among all, which was down 71% y-o-y. Positive sign came from retail goods turnover, which was up 10% y-o-y. According CBRE Vietnam’s survey, revenue at some F&B chains recovered up to 40-70% of the pre COVID-19’s level; although the level of recovery varies from location to location. Ms. Pham Ngoc Thien Thanh commented: ”Those retail areas which are heavily tourists and officer-oriented, see slower recovery as the economy downturn has such great impact on consumers’ purchasing power and tightens their spending budget. In the second half of 2020, consumers will still focus on foods, essential goods, healthcare products, instead of discretionary goods”.
At shopping centres, asking rents (excluding short-term rental support, CAPEX support from developers) maintained previous quarter’s level. Compared to same period of last year, average asking rent on Ground floor and First floor increased by 3.8% in the CBD area and decreased by 0.9% in the non-CBD area. In terms of vacancy rate, CBD area recorded an increase of 0.3 ppt (equivalent to 300 sqm) and non-CBD area recorded an increase of 5.4 ppts (equivalent to 49,000 sqm). Besides the location factor, increase in vacancy rate varies across retail formats. Those shopping centres which normally had good level of footfall recovered faster than those without interesting and reasonable tenant mix. On average, vacancy rate was up 4 ppts for shopping centres, 0.5 ppt for department stores, and 9 ppts for retail podiums. Contractions were seen more often at retail podiums from F&B and local fashion categories. Other categories such as Supermarket, Healthcare, Convenience store are under normal operation.
Vacancy rate is expected to have mild recovery in H2 2020 while asking rents are expected to maintain the current level, backed by short-term rental support policy from developers. Against the global backdrop of COVID-19, most retailers in the world postponed seeking new spaces and instead, they are focusing more on recovering performance of existing stores. According to CBRE Asia-Pacific Retailer Survey, more than 65% of retailers will put a hold on expanding and carry on reviews of current performance. Almost 50% of retailers will stop site visits and 36% will reduce CAPEX for their physical stores. In Q2 2020, Uniqlo opened other two stores in HCMC and in Q3 2020, MUJI, a brand from Japan, will open their first store in the city. However, these transactions were dated back in 2019. In 2020, the number of new international brands was sharply down compared to the last four years.
Along with stores’ consolidation and size reductions are serious investment in online retail and omni-channel strategy. In Vietnam, some brands have introduced their online platforms such as Starbucks, Maison and soon so will ACFC. Some mid-end F&B, coffee brands such as Pizza4P, Ong Bau Coffee, etc. became more creative and introduced kiosk, semi-truck formats to quickly expand their market coverage. On the other hand, some local brands wanted to utilize this low market cycle to accelerate their expansion strategy to boost their competitive capacity in the near future.
By the end of H2 2020, international flights are expected to resume and hence, the comeback of international tourists, which can help with revenue recovery of some retailers. All pipeline projects postponed their opening date, awaiting for recovery of leasing demand as well as Metroline No.1, which is expected to open next year. The opening of the first Metroline will be followed by change in rents at projects with direct connection as well as category mix to better suit new consumers profile. Moreover, a nascent retail format in Vietnam and HCMC, underground retail, can become more popular thanks to the introduction of the metro lines. In H2 2020, the market will not have any new retail project; one project in the CBD area can be re-opened after two years of renovation.
HCMC Condominium Market – 07 July 2020 –
With nationwide social isolation in April and the negative impacts of COVID-19, new launch supply in HCMC hit the lowest point in the last five years. Foreign developers were particularly quiet in H1 2020, accounting for only 10% of new launch supply compared to around 20% in 2018 and 2019. In Q2 2020, new supply volume was recorded at 1,644 units from seven projects, a drop of 54% q-o-q and 60% y-o-y. In H1 2020, a total of 5,250 units were launched, a decrease by 39% y-o-y.
The average selling price for the primary market was at USD1,940 psm, relatively stable from the previous quarter, and up by 4% y-o-y. Mid-end selling prices increased slightly by 1% q-o-q thanks to subsequent phase of successful projects in Q1 such as Citi Grand and West Gate Park. This segment also recorded the highest price growth of 10% y-o-y. Meanwhile, other segments’ prices remained stable from the previous quarter and higher than the same period last year by 4%-6%.
Sold rate in Q2 2020 reached 70%, a decrease of 10-15 ppts q-o-q. Because of high selling price and the impacts of COVID-19 in Q2 2020, buying demand diminished during this period. In Q2 2020, sold units were recorded at 1,581 units, a decrease of 58% q-o-q and 66% y-o-y. In H1 2020, a total of 5,338 units were sold, a decrease by 49% y-o-y.
In terms of segmentation, the mid-end segment continued to dominate in terms of new launch supply and sold units, at 55% and 61% respectively. In terms of location, HCMC condominium market continued to expand East and South, concentrating in District 2, District 7 and Binh Chanh District.
Looking forward, Ms. Dang Phuong Hang, Managing Director of CBRE Vietnam, notes: “2020 is a difficult year for the residential market due to the devastating impact of COVID-19. However, there are positive signs at the end of Q2 2020. Developers are eager to launch after the six-month break while buyers are actively looking for suitable products with reasonable prices. Hence we expect that the market will be more active in H2 2020.”
New launch supply is predicted to improve in the second half of 2020 and achieve a total of 18,000 units, a decrease of 32% y-o-y. Mid-end segment will continue to account for a high proportion of new launch supply. In terms of location, the East remains a hot spot in the real estate market, with many new projects in District 2 and District 9.
The average marketwide selling price for 2020 is expected to increase 5% y-o-y, with high-end and luxury segments forecasted to have a modest growth rate of 3% y-o-y. Mid-end segment is expecting a price increase by 5% y-o-y thanks to high price growth rate in H1 2020. The sold unit volume is forecasted to reach 16,000 units, a drop of 45% y-o-y, because of COVID-19.
To adapt to the new normal, the market needs more flexible solutions. In the short term, developers are supporting local buyers in terms of payment term, enhancing management team to ensure safety of residents. In addition, developers should prepare supporting policies for foreign buyers, who cannot enter Vietnam due to COVID-19, such as handover policy, unit management and secondary transactions. In the long term, products, sale strategies and price strategies should be reviewed carefully. Furthermore, land banks should be expanded to various locations in HCMC and other provinces.
CBRE’s condominium ranking criteria
Affordable: projects that have primary prices under US$1,000 psm