HO CHI MINH CITY – 03 July 2018 –
Notes on CBRE condominium ranking criteria:
In Q2 2018 the HCMC market welcomed an additional 6,109 condominium units, a decrease of 36% y-o-y. However new launch supply for 1H 2018 still increased 5% compared to 1H 2017. Mid-end segment witnessed the biggest decrease in new launch in Q2, down 62% q-o-q and 52% y-o-y, probably because the fire incident at the end of March has put a stronger focus on safety measures in condominium projects and made the process of obtaining the relevant safety certificates more stringent. Besides, the government has also limited bank credit going into real estate in order to control the overheating of the market. As a result, developers are expected to look for other sources of funding besides bank loans. Some real estate developers have listed/showed intention to list on HCMC Stock Exchange such as Vinhomes, Van Phu Invest and CENLAND, or have turned to overseas exchanges such as the convertible bond issuance of Novaland on Singapore Exchange.
With regards to the breakdown by segment, the high-end segment accounts for the highest proportion of new launch units in Q2 at 54%, followed by mid-end at 42%. Q2 2018 recorded one new luxury launch which is Cove Residence tower of Empire City project with 40 units.
Sales momentum continued to be positive in Q2 2018 with more than 80% of new launch units having been absorbed. In Q2 2018 there were 6,947 sold units in total, a decrease of 25% q-o-q and decrease of 29% y-o-y.
Average price on the primary market was recorded at US$1,580 psm in Q2 2018, an increase of 3% q-o-q due to increase in prices of the luxury segment. Primary price increases of 3%-5% were observed in some districts such as District 4, Binh Tan and Tan Phu.
Even with a slow start, the mid-end segment is expected to maintain a high proportion in the new launch units of 2018, thanks to some large-scale projects that are expected to launch in the second half of the year. On the other hand, busy pre-sale activities in some luxury projects in the past six months show that the market still has considerable interest in this segment. In terms of area, the East and the South will continue to be hotspots for the second half of 2018, especially the Thu Thiem area. Sales momentum will continue to be upbeat, however developers should focus more on handover quality, facilities and management quality in order to gain customers’ trust and differentiate themselves from the competition.
In Q2 2018, there was no new supply in the HCMC office market. Grade A remained 382,763 sq.m NLA while Grade B increased 968 sq.m NLA to 814,330 sq.m NLA because of Viettel Complex opening more floors for outside leasing. Looking forward to 2H 2018, total new supply for Grade B will come from two decentralized projects - Thaco Building in District 2 with approximately 6,000 sq.m NLA and M Building in District 7 with 3,000 sq.m NLA. Both buildings are owner-occupied and only allowed a small portion of available area for outside leasing.
Asking Rents for Grade A and B increased q-o-q and y-o-y. Grade A achieved 7.0% q-o-q and 17.0% y-o-y growth rates which was driven by rapid absorption and limited supply. Similarly, asking rent for Grade B, while not increasing as much as Grade A, also showed a 7.3% growth rate y-o-y.
Net absorption for the past year showed rapid absorption. Vacancy rate for both Grades were below 5%. Some tenants at a few Grade B office buildings relocated to other buildings with prime locations or relocated to expansion; however, this did not affect the market performance much.
In terms of demand, tenant’s profiles remained the same path. Major tenants still originate from traditional sectors such as Manufacturing (22%), Banking/Finance/Insurance (22%) and Technology/Media/IT (17%). In terms of tenant’s nationalities, APAC still maintained a 61% of total enquiries compared to 15% coming from EMEA.
Looking forward, Ms. Dang Phuong Hang – Managing Director of CBRE expects that Grade A will maintain its increasing path, though at a slower rate, for rental rates because of limited available supply from now until late 2019 – early 2020; vacancy rate will also be decreasing slower because of Grade A’s hiked up rental rate. Grade B is expected to have a more stabilized and healthy performance because of its small but more constant supply from now until 2019. The market from 2018F – 2020F will still be a landlord-driven market.
In Q2, there was no new supply in HCMC retail market. The market performance, which includes asking rent and vacancy rate, as a result, did not see any significant changes. The asking rent for an area of 80-250 sq.m. on ground floors and first floors in the CBD area remained at US$127 per sq.m. per month, while that in non-CBD area decreased slightly by 4% y-o-y to US$36 per sq.m. per month. The supply of retail space in the CBD area continues to be limited because there was not much progress made on the construction of most future supply and the launch dates of some were delayed until next year.
In the Vietnam market, the number of retail brands is still small in comparison to its regional counterparts, which causes existing shopping malls difficulties in positioning themselves against others. As a result, CBRE forecasts the vacancy rate will rise in the next three years, especially in the non-CBD area. In the review quarter, the retail leasing department of CBRE also received a great number of enquiries from F&B and fashion clients, and some of their brands are teenagers’ favorites such as Founder Bak Kut Teh, Wayne’s Coffee, Eat Street, Dickies, Steve Madden, etc. With the golden population structure and rising disposable income, Vietnam market will expect to witness a rapid expansion of the F&B, fashion and healthcare industries in the next three to five years.
The gap between the asking rent in the CBD area and non-CBD area will widen in the next two years, when many retail podiums are expected to be handed -over and large-scale shopping centres will be located outside of the city center, where the population density is high and personal income is improving. “With the limited office supply in the CBD area and the difficulty in leasing retail podiums in non-CBD area, we expect the combination of co-working space and retail podiums will become more popular in the next two years”, said Ms Dang Phuong Hang, Managing Director of CBRE Vietnam.