HANOI – 04 July 2018 – Continuing impressive trend of the first quarter of 2018, Vietnam’s second quarter GDP growth was recorded at 6.79% y-o-y, which adds to the first half growth of 7.08%, the highest growth rate in 8 years. CPI in May and June were also at the highest levels since 2011, which raised average first 6 months’ CPI of 2018 to 3.29% from a year earlier. The current level has approached the targeted CPI of 4% for the entire year set by the National Assembly.
By the end of Q2 2018, export value reached USD 113.93 billion, an increase of 16% compared to previous year while import valued at 111.22 billion, up by 10% y-o-y. As a result, Vietnam recorded a trade surplus of USD 2.71 billion. The key drivers behind export growth were mobile phones, computers, electronic equipment, which accounted for 38.4% of total export value, rose by 18% y-o-y. Meanwhile, import growth was driven by 38.8% increase in gasoline, 17.1% increase in textile.
Total value of foreign direct investment in Vietnam, including newly registered capital, increased capital, and capital contribution & share purchase reached USD 20.33 billion, an increase of 5.7% y-o-y. Real estate sector attracts the second most FDI injection with USD 5.54 billion, accounting for 27.3% of the total, in the period. This figure is noteworthy as real estate typically only accounts for 6-9% of total FDI. Hanoi to be the country leader in FDI approvals in the first half of 2018, with USD 5.87 billion. The highlight of this quarter is Japan-based Sumitomo Corp, along with other local partners such as BRG, were approved by Hanoi Municipal People's Committee for a smart city project at Dong Anh District worth USD 4.13 billion. Lotte also pledged to invest USD 600 million in a high-end international standard complex, including shopping centers, office and hotels in Hanoi.
In the first six months of 2018, Vietnam welcomed 7.89 million of international tourist arrivals, up by 27.2% y-o-y. Asian tourists still dominated the tourism market, accounting for nearly 77% of total number of international tourist arrivals. China (2.56 million) and South Korea (1.71 million) not only are the top two highest nations in term of number but also the leaders in growth.
In Q2 2018, there were 6,534 units launched from 19 projects in Hanoi, down by 20% y-o-y. Launched projects in this quarter are mostly located in the West and North of the city accounting for 53% and 25% of total new launched units. It is noticeable that there were three new projects in high-end segment including D’Eldorado 2, Starlake and Vinhomes West Point, all located in prime position, which drew positive market attention. The share of high-end segment in this quarter has increased from 15% in Q1 2018 to 37% in this quarter.
Notes on CBRE condominium segments’ classification:
In terms of sales performance, 5,900 units were sold during Q2 2018, down by 22% y-o-y. This time of the year is when developer typically review current products and prepare for new products launched at the end of the year. The slower launching speed also allows market to absorb unsold units.
In terms of pricing, the average selling price from developers in Q2 2018 was recorded at US$1,332 psm, down by 0.4% q-o-q but up by 0.4% y-o-y. There were slight adjustments up and down from 0.3% - 1.5% across different market segments during this quarter. The three abovementioned projects have increased the average primary price of high-end segment by 1.5% y-o-y.
In 2018, CBRE forecasts there will be 32,000 units launched in Hanoi – a decrease of 10% y-o-y. The decrease in launched supply allows inventories to absorb, which is a positive signal for the market. This shows that developers are more experienced in developing residential projects and analysing market conditions.
The second quarter of 2018 recorded 182 newly-launched units, which came from four projects including Rose Town, Lavender, Itasco and Ecopark Grand the Island. Remarkably, several newly-launched units are situated on crowded streets with great business potential. As a result, these projects are generating good attention from buyers.
In terms of sales, 223 units were sold in the second quarter of the year, a decrease of 62% q-o-q and 85% y-o-y. The sold units decreased mostly due to limited new supply.
Regarding pricing, in comparison with the previous quarter, the average secondary price of villas experienced an increase of 4%. This increase was mostly from projects located in the West of Hanoi in area such as Ha Dong or Nam Tu Liem.
In upcoming quarters, the market is expected to welcome new launch from both first launched and next phase of township developments including Ecopark, The Manor Central Park and Smart City Noi Bai – Nhat Tan.
There was no new Grade A and B office supply in the first half of 2018. However, in second half of this year, there will be 125,000 sm expected to come on line, which increase the Hanoi total office supply to 1.4 million sm. Given the positive construction progress, Grade A is expected to welcome new project this year – one year earlier than initial plan.
Market performance this quarter continued to show clear recovery in both grades. For Grade A, the asking rent increased by 0.6% q-o-q and 3.8% y-o-y staying at US$25 psm pm (excluding VAT and service charge). The remained vacant area in Grade A continued to be absorbed leading to a 0.7ppt q-o-q decrease and 4.6 ppts y-o-y decrease in vacancy rate. End of Q2 2018, the average vacancy rate of Grade A building in Hanoi stayed at 6.6%. For Grade B, the asking rent slightly declined by 0.3% q-o-q staying at US$14 psm. Given the competitive rental rate, vacancy rate of Grade B significantly decreased by 3ppts q-o-q – strongest decrease by quarter since early 2015.
Demand-wise, net absorption was around 24,000 sm in the second quarter of 2018, up by 23% q-o-q. Along with the strong economic growth, there has been increasing demand for new office and expansion based on CBRE’s enquiries. Additionally, due to limited new supply in Hanoi CBD, tenants have tendency to renew existing contracts. A significant trend in the first half of 2018 is the increase in demand for long-term lease (longer than 10-year tenure). In terms of purpose, there are two typical types of tenants including investors to sublease and owner-occupied tenants. Investors tend to require large areas of more than 1,000 sm, meanwhile owner-occupied tenants require area fitting their business model, of typically range from 500 – 1,300 sm.
Looking forwards, Grade A’s rent is expected to continue to increase in the second half of 2018 under current good market condition. Meanwhile, Grade B’s rent is expected to remain stable given stronger competition. Since the new projects are anticipated to complete at the end of the year, the vacancy of Grade A and B would temporarily increase to 8% and 18%.
Hanoi welcomed two new shopping centres, Machinco and Truong Dinh Plaza, adding up the total supply of retail market to nearly 820,000 sm. By location, Midtown and the West still dominate the supply market with more than half of total retail space (NLA) in the market. This trend is likely to continue as five out of six future projects are expected to come into operation in Midtown and the West by the end of 2018.
Regarding market performance, due to limited supply and no new supply, CBD saw improvements in both asking rents and occupancy. By the end of Q2 2018, asking rent in CBD rose slightly to nearly US$99 psm pm, up 0.8% y-o-y and 0.4% q-o-q, while vacancy reduced to 0.7%, down 1.2 ppts y-o-y and 1.1 ppts q-o-q. With one future project expected to be opened by Q4 2018, CBD’s asking rent is predicted to decreased to US$90.7.
Non-CBD area faces the challenge of balancing between vacancy and asking rent. Midtown and the West, where majority of retail space is located, saw the asking rent stood at US$28.7, down 0.3% y-o-y but up 1.1% q-o-q. Similarly, asking rent in other non-CBD areas decreased to US$24.1, down 2.4% y-o-y and 0.3% q-o-q. Vacancy, on the other hand, increased all non-CBD areas with 14.4% in Midtown and the West and 5.8% in other non-CBD.
In the first half of 2018, more and more international players gain foothold by entering and expanding in Vietnam’s market. Hanoi welcomed more retailers such as the entrance of Xiaomi, Lyn and the expansion of H&M, targeting the rising young population. The competitive landscape is, therefore, predicted to be more intense, forcing local retailers to improve the product portfolios and operational process.
Rising residential and office development outside CBD has formed new residential clusters, creating demand and space for retail as facilities in township and add-on feature of commercial buildings. Looking forward, positive economic outlook and strong consumer confidence will encourage consumption and more entrance of international brands to Vietnam’s retail market. Retail format as podium in a commercial or residential building will continue to be more popular as it can catch immediate trade area and provide additional benefit.