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CBRE Releases Q2 2017 Quarterly Report Highlights – HO CHI MINH CITY MARKET
 

HO CHI MINH CITY – 28 June 2017 –

 

Vietnam’s GDP is expected to grow by 5.6% in Q2 2017, slightly higher than the first quarter level of 5.1% but lower than the 2016 level of 6.2%. Despite the slowing trend of GDP growth in recent quarters, Vietnam is positive about its outlook in 2017 and still aims to reach an ambitious growth target of 6.7% by the end of this year. Explaining this confidence, Vietnam is determined to follow through with the Trans-Pacific Partnership, despite the withdrawal of the U.S., the largest of the twelve trading partners. Vietnam is optimistic after meetings with Donald Trump, the President of the U.S., and Shinzo Abe, Prime Minister of Japan, which promise strengthening relationships between Vietnam and some of the biggest economies in the world. At the same time, Fitch and Moody’s upgraded Vietnam’s outlook rating from stable to positive, helping the country in its search for foreign investors. In terms of FDI in 5M 2017, Vietnam recorded US$5.6 billion of newly registered investment capital along with US$4.7 billion of increased capital and US$1.8 billion of purchased shares. Total FDI, accordingly, increased 10.4% y-o-y. FDI into real estate accounted for 7% of total FDI. According to a CBRE Survey on Asia Pacific Investor Intentions in 2016 and 2017, yield spread has become the main motivation for investment, taking the lead from capital gain. Meanwhile, the prime office yield spreads in HCMC and Hanoi have reached a ten year high at 3%-4% above 10-year government bond yields and are now in the top 21 cities in APAC. While previously the office sector was the focus of foreign interest, with the continuing growth in both business and leisure travel to Vietnam, the hospitality sector is now also attracting foreign investors. In terms of investment route, despite the easing of restrictions, it still makes compelling business sense for most investors entering Vietnam to form a JV with local developers.

 

Inflation and interest rates, notably lending rates, started to pick up in Q2 2017, due to the Fed’s increasing rates as well as the appreciation of the US Dollar against VND. Increasing inflation and interest rates may pose challenges for the real estate market, however, current conditions are considered manageable by the Government and it may take some time for the impact of these to be seen in the market.

 

Condominium market

 

Aligning with our forecast in Q1, the market was active again in Q2 2017 as developers finished reviewing their projects and strategies. Numbers of both new launches and sold units have improved. Although 7% lower y-o-y, the number of new launches increased by 80% q-o-q. There were 9,580 units launched from 31 projects. 64% of these newly launched units were from new projects, with 56% coming from the mid-end segment. The high-end segment expanded the most at 141% q-o-q and is expected to see more new projects from reputable developers in the second half of 2017. The affordable segment increased by 19% q-o-q with 1,575 units while the luxury segment remained quiet in this quarter with no new launches. 

 

By location, once again the East was the most active area, accounting for 36% of total new launches. The West also continued to record a high number of new launches with 3,268 units, accounting for 34%, mostly in the mid-end segment. This partly reflects the trend of some notable developers to move to the West to take advantage of cheap land prices, availability of land banks and improved infrastructure. Only 2,408 units were launched in the South area in this quarter, mostly in District 7. The North added 486 units from one project in District 12.

 

Sales momentum was strong again with 9,522 units sold, improvements by 40% q-o-q and 59% y-o-y. Newly launched projects recorded 5,765 units sold, accounting for 60% of total sold units. Newly launched projects reported an average of 54% total sold units within one quarter. The mid-end segment continued to see a high sold rate.   

 

The average selling price reached US$1,578 psm, a reduction of 1% q-o-q and an improvement of 9% y-o-y. The slight reduction compared to the previous quarter was due to the introduction of projects in lower segments. Price improvements were recorded in District 7 and District 10 thanks to the higher prices of better units in second phases.

 

Based on CBRE’s successful deals in 1H 2017, foreign buyers are more confident and involved in a wider variety of transactions. Foreign buyers accounted for 59% of total successful deals in this quarter. Singaporean, Taiwanese, South Korean and Hong Kong buyers were the most active. In terms of unit type, 2BR and 3BR accounted for 38% and 37% respectively. Buy-to-let investors accounted for 53% of buyers, a decrease of 19 ppts in comparison with 1H 2016. The proportion of owner-occupier buyers increased by 9 ppts.

 

Looking forward, the improvement in HCMC infrastructure and favorable economic conditions continue to support the condominium market. In the second half of 2017, the high-end segment will be more active. Some high-end projects in good location such as D’Edge in Thao Dien (D2), second phase of Empire City (D2) have already started to receive reservations in the last month of Q2 2017. The market will welcome more high-end, super luxury products which are larger in size. Price and foreign buyers are expected to increase thanks to the introduction of new products.

 

Notes on CBRE condominium ranking criteria:

  • Luxury: projects that have primary prices over US$3,500 psm
  • High-end: projects that have primary prices from US$1,500 psm to US$3,500 psm
  • Mid-end: projects that have primary prices from US$800 psm to US$1,500 psm
  • Affordable: projects that have primary prices under US$800 psm

Landed Property

 

 

 

Q2 2017 welcomed new launches of 671 units from both new and existing projects. The four new projects were Park Riverside in District 9 by M.I.K, Lien Phuong Star in District 9 by Khang Dien House, Lavila Phase 2 in Nha Be District by Kien A and Khang An Residence in Binh Tan District by Khang An. Regarding existing projects, Cityland Group launched 100 new units from Cityland Park Hills in Go Vap District while Hung Phu Invest also launched 100 units from Thang Long Home in Thu Duc District. In the first half of 2017, while the East continued to be the dominant area in terms of new supply (68%), the market has witnessed new launches all over the city, including the newly tapped West area (Binh Tan District) with 13% of total new launches. The North and the South each accounted for about 10% of total new launches in the same period. In terms of sold units, the whole market absorbed 817 units, from both newly launched and existing projects, a decrease of 6% y-o-y and a decrease of 16% q-o-q, due to lack of large scale projects.

 

Per average market performance, the primary selling price increased 15% y-o-y while slightly decreasing by 1.5% q-o-q. Without abundant new supply, market performance in the secondary market was much more upbeat, especially in townhouse and shophouse products. The secondary market for ready-built townhouses/shophouses recently witnessed a spike in re-selling prices in District 2 and Go Vap District, where selling prices have increased as much as 30% in the review quarter for units in good locations.

 

Some large scale projects by big developers have not shown signs of groundbreaking despite being advertised frequently in recent quarters. In the meantime, many other smaller scale projects are in the booking period, meaning that developers are testing the market for favourable selling prices before officially launching later. In 2H 2017, large scale projects are expected to start all over the city as well as the introduction of products of different segments.

 

Retail

 

 

Youth focused mass fashion and F&B continue to dominate the new tenant market. While Zara opened its second store in Vietnam in Hanoi, H&M is in the fitting out period and will open its first store in HCMC this August. This will focus attention from fast fashion competitors who are seriously considering opening stores in Vietnam. Continuing with the convenience store expansion trend seen in recent quarters, HCMC welcomed the first 7-Eleven store, the largest convenience store chain in the world, in Q2 2017. Other new notable international brands included Old Navy, Innisfree and NARS and many other milk tea brands from Taiwan. This trend is expected to continue the near future.

 

Q2 2017 welcomed 37,389 sm of NLA to the city’s existing supply, bringing total NLA to 853,425 sm. All new projects in the review quarter were in non-CBD areas (Pearl Centre, Vincom Plus Homyland in District 2, Vincom Plus Saigonres in Binh Thanh District and Romea Shopping Centre in District 3) and were residential retail podiums. Looking forwards, we expect more supply the residential retail podium format, thanks to many condominium projects which are due to be handed over soon. However, there are concerns about occupancy levels in these retail podiums. Except for projects in good locations and/or from a trusted developer, where it is beneficial for anchor tenants such as a gym, supermarket, cinema or entertainment to move in, occupancy levels at many projects were poor in the first quarter after opening (CBD Home Premium, Vincom Plus Homyland and Vincom Plus Saigonres were opened with 30-75% vacant space). Hence, it is critical that developers thoroughly consider the size of the retail component of their products before construction.

 

Net absorption in Q2 2017 was 19,520 sm and the vacancy rate was 9.66%, an increase of 1.7 ppts q-o-q and 1.1 ppts y-o-y. Vacancy rates were reported to have increased in both CBD and non-CBD areas. In non-CBD areas, the opening of new residential retail podiums with relatively low initial occupancy, as mentioned above, has brought the vacancy rate up by 1.1 ppts q-o-q. Meanwhile in CBD areas, Vincom Centre B and Kumho Links have quite a few of their leasing areas closed up for renovation while they are preparing for major changes in floor layouts and tenant relocation. As a result, the vacancy rate in the CBD area was also up by 4.8 ppts and reached 16.8%. However, these vacant spaces are expected to be filled up quickly in the next quarter.

 

Regarding rental rates, in non-CBD areas, due to the opening of new retail podiums and department stores in District 2 and 3 whose rental rates are above the average, rental rates experienced good increases in these two formats, by 35% and 12% q-o-q, respectively. Due to limited existing supply, the introduction of new projects may cause significant changes in the market average rental rate.

 

In the non-CBD shopping centre format, the rental rate was only up by 1.2% in the same period. In the CBD area, on-going renovation increased the average level of rental by 5-10% in the retail podium and shopping centre formats. At department stores, the market continued to witness a decrease of rental rate by 6.7% q-o-q.

 

In 2H 2017, new supply will be clustered in the non-CBD areas, out of which District 5 and District 10 will stand out with in terms new supply. Rental rates in the CBD will be stable while rates in the non-CBD will be likely to slightly increase. Mass fashion and F&B that targets youngsters will continue to expand and draw lots of attention from the market.

 

Office

 

 

In Q2, there was no new supply in Grade A and only one new Grade B project, the Viettel Complex in District 10. This project has 65,971 sm GFA, equivalent to 40,620 sm office net leasable area and 10,000 sm retail net leasable area. However, 14,000 sm NLA office space will be occupied by Viettel; therefore, only 26,620 sm NLA was added to supply in Grade B this quarter. Based on CBRE enquiries at this new building, the majority of tenants are from the IT and Software sector and occupied spaces of more than 1000 sm.

 

Market performance continued to be stable in Q2 2017 with good leasing momentum. Rents for both grades decreased q-o-q but increased y-o-y. In particular, Grade A rents reported US$36.3/sm/month, increasing by 1.7% y-o-y but dropping by 1.7% q-o-q while Grade B reported US$21/sm/month, increasing by 6.1% y-o-y but decreasing by 4.0% q-o-q. This stability in asking rental rates reflected that the market, especially existing supply, is bracing for new supply in 2H 2017 and is attempting to achieve full occupancy before the new supply comes online.

 

The vacancy rate, with the exception of Grade A, increased overall q-o-q because of new supply. Grade A recorded a vacancy rate of 5.3%, increasing slightly by 1.2 ppts y-o-y but dropping 1.1 ppts q-o-q. Grade B recorded 4.0%, increasing by 0.4 ppts y-o-y and 1.4 ppts q-o-q. The Grade B vacancy rate increased slightly y-o-y because vacant space at Viettel Complex and Saigon Giai Phong Newspaper Building has yet to be fully absorbed.

 

Net absorption in the review quarter was healthy, with Grade A at 3,585 sm NLA and Grade B at 11,948 sm NLA. Positive net absorption is due to the level of new properties released to the market as well as good leasing activities recorded at Viettel Complex for Grade B and overall for Grade A.

 

Regarding tenant trends based on CBRE’s enquiries, this quarter saw Manufacturing, Real Estate and Telecommunication/Media stepping up with 19%, 24% and 10%, respectively. New letting accounted for 21%, an increase from last quarter of 9% with the majority of leasing enquiries coming from Real Estate (55% of total new letting). Leasing enquiries are increasing for spaces from 300 – 700 sm, while remaining stable for larger spaces from 700 sm and above.

 

Looking forward, the market is booming, with opportunities for both developers and tenants as new quality supplies will continue to enter the market during 2H 2017. Good absorption has been noted for new supply in 2017 to date. However, for the last six months of 2017, net absorption is expected to be slower as this continuing new supply takes time to be absorbed. Decentralization continues to be a trend where tenants can find more options in terms of competitive rents from non- CBD-areas as well as finding larger spaces, leading to a better outlook for higher asking rents for developers with decentralized projects. Build-Occupy-Lease is starting to become a prominent and recurring theme in 2017.

 

END

 

© 2016, CBRE, Group Inc. CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.