Ho Chi Minh City - 8 April 2021
HCMC Office Market
In Q1 2021, the HCMC office market had no new supply. The existing supply remained at 2020 level which was 1,422,486 sqm NLA from 18 Grade A buildings and 68 Grade B buildings. After the challenging year of 2020, the office market witnessed signs of recovery in the first quarter of 2021, as shown in positive net absorption. Total net absorption in the quarter was 19,655 sqn NLA, mostly from Grade A sectors, bringing the vacancy rate of Grade A sector down by 3.9 ppts q-o-q. The average vacancy rate for Grade A sector was 14.2% and for Grade B sector was 9.0%. However, the vacancy rate level has not fully recovered to the pre-pandemic level and still was at 3.4 ppts and 3.3 ppts higher than last year’s level for Grade A sector and Grade B sector, respectively.
Based on transactions recorded by CBRE Vietnam, relocation and expansion accounted for 80% of the total number of transactions in Q1. Unlike previous quarters, there was not any transaction from contraction. Most buildings with good accessibility and connection to the city centre, along with high management quality and building specifications, recorded an improvement in occupancy rate, especially those in District 7, District 10, District 2 and District 4. In terms of lease areas, the top three leading industries are Information Technology, Finance/Banking and Insurances, together account for 60% of total lease areas. Logistics, Manufacturing, and Retail/E-commerce, despite smaller lease areas, have witnessed strong growth since 2018.
The rental rate of Grade A sector was at US$42.1/sqm/month and the rental rate of Grade B sector was at US$25.1/sqm/month. The decreasing trend has slowed down in both sector. Except for a few newly vacant spaces in the quarter, for which landlords lowered asking rents, most Grade A buildings maintained the rental level of previous quarter. On average, the rental rate of Grade A sector decreased by 1.7% q-o-q. For Grade B sector, the average rent rate decreased by 0.9% q-o-q, also resulted from newly vacant spaces in the quarter.
In 2021, we expect a new supply of 74,000 sqm NLA office from five Grade B buildings which were AP Tower, Pearl 5 Tower, Cobi Tower, The Graces and Saigon First House. Until 2022, we expect to have two new Grade A buildings coming online. According to Thanh Pham, Associate Director of CBRE Vietnam, Research & Consulting:” The market is on a positive recovery path with the increase of transactions of expansion. Some occupiers are willing to expand at buildings of better location and quality despite higher rent. According to occupier survey by CBRE, APAC occupiers are more positive about expanding office areas than global occupiers. Important criteria in making the leasing decision are finance, safety, employees’ wellness as well as flexible workspace optimization.”
HCMC Retail Market
There was not any new supply in Q1 2021. As of Q1 2021, the total supply was at 1,049,023 sqm NLA, similar to the level of previous quarter. According to General Statistics Office, total retail and services turnover in Q1 2021 is on a good recovery track, although the growth rate is still lower than 2019’s level. The total retail and services turnover in HCMC grew by 6.2% y-o-y, which was higher than the negative growth of 1.3% in 2020. Foot traffic to retail and recreation centres, according to Google Mobility Index, is comparable to the pre-pandemic level at big cities such as HCMC and Hanoi while that of tourism cities such as Da Nang and Khanh Hoa still lags behind the pre-pandemic level.
The rental rate in the CBD is stable in the quarter while the rental rate in the non-CBD slightly decreased by 0.7% q-o-q. In general, asking rent has recovered to the level before COVID-19 but most landlords now wait for more signs of market recovery before starting picking up rent again. In terms of vacancy rate, the vacancy rate in the CBD slightly increased by 0.45 ppt yet the newly vacant spaces are expected to be filled soon in the next 1-2 quarters due to limited supply. In the non-CBD area, the vacancy rate decreased by 0.16 ppt q-o-q yet still 5 ppts higher than the previous year.
The retail market recorded continued expansion of chains of Fashion & Accessories and F&B. Uniqlo opened the fourth store of 2,000 sqm in Vietnam at Van Hanh Mall and Decathlon will soon open the next store at Vincom Mega Mall Thao Dien. The trend of fashion anchor tenants is expected to continue in the non-CBD area and the trend will have an important impact on smaller occupiers in the shopping centres. Besides, categories such as F&B, coffee chains, convenience stores will continue opting for expansion at populous residential areas in the city. Many developers are now having long-term strategic plans in Vietnam. For example, Central Retail recently announced to invest US$1 billion in Vietnam, and started to restructure its real estate formats to suit different locations, especially second-tier provinces. Aeon Group is going to develop mall malls in Hue and Binh Duong before opening another one in the North.
By 2025, the market is expected to welcome over 550,000 sqm of new retail NLA; however, the opening dates of most shopping centres are being postponed by impaired leasing demand. Commenting on market outlook, Ms. Pham Ngoc Thien Thanh, Associate Director of CBRE Vietnam, Research & Consulting: ”Number of new foreign brands into the market is still limited due to impact of COVID-19 has not been solved globally and most brands are now focusing on recovery before stepping into new markets. Rental rate is expected to slightly increase at some good performing projects while vacancy rate will continue to improve this year.”
HCMC Condominium Market
New launch supply continued to decrease in Q1 2021 due to licensing issues and the COVID-19 pandemic. In Q1 2021, a total of 1,709 units were launched, a decrease of 74% q-o-q and 53% y-o-y. This is one of the lowest numbers of supplies per quarter in the last three years.
High-end and luxury projects continued to lead the market in terms of new launch supply while mid-end and affordable supplies were limited. Mid-end accounted for 41% of total supply compare to 55%-60% in previous years. The luxury segment ranked second with 39% of the total new launch supply. High-end accounted for 20% and no new supply in the affordable segment.
In terms of location, the East area accounted for 47% of the new launch supply by total number of units, followed by The South with 36%. There were very limited supply in the West and The Central areas which accounted for 14% and 3%, respectively. The Central area has limited supply due to limited land banks and licensing issues.
The average selling price for the primary market was USD2,219 psm, up by 2.9% q-o-q and 14.6% y-o-y. The increase in primary price was due to most supplies have good locations. Also, these projects offered better handover conditions, better facilities and supporting payment terms.
In Q1 2021, a total of 2,624 units were sold, a reduction of 48% q-o-q and 31% y-o-y. This number is much higher than the new launch supply in Q1 2021. Limited supply in the primary market was the main reason for the reduction in sold units. The absorption rate of newly launched projects was good which was 80% on average. The market absorbed gradually the high-end inventory in 2020. High-end inventory dropped 16% q-o-q.
Looking forward, Ms. Duong Thuy Dung, Senior Director of CBRE Vietnam, notes: “2021 continues to be a challenging year, however, there are positive signals from strong local demand. This is an opportunity for developers to meet this demand in the context of lack of supply for both end-user and investor.”
In 2021, there will be no significant change in the market, however, the market will improve. It is expected to welcome approximately an annual total of 17,500 units from new projects in suburban districts: District 9, District 12, Binh Tan District, and Nha Be rural district.
Primary prices will continue to increase at a slower pace so the market could absorb the remaining units. Primary prices will increase by 1%-4% y-o-y in all segments except the luxury segment. The luxury segment will increase by 2%-7% in 2021 and 2022 thanks to new branded residence projects in District 1.
In terms of demand, local buyers continued to be active. Meanwhile, foreign groups start to return thanks to “vaccine passport” and the gradual opening of international flights. Besides, developers are flexible in holding events in target abroad markets such as Taiwan, Hong Kong,… Sold units are expected to reach 15,700 units and 19,400 units in 2021 and 2022, respectively.
Notes on CBRE condominium ranking criteria:
(Selling price excludes VAT)