CBRE RELEASES REAL ESTATE MARKET UPDATE HIGHLIGHTING KEY TRENDS IN HCMC
October 12, 2022
Senior Manager, Head of Marcom, Marketing & Communications, Vietnam
HCMC Office MarketHCMC Office market welcomed 2 new Grade B projects from Korean investor – Cobi Group in District 7 with total Net Leasing Area of 26,932sqm. The very first few tenants of those 2 buildings are big names such as Lotteria, Lock&Lock, 7-Eleven.
In Q3/2022, the average vacancy rate of Grade A office was reduced to 6%, down by 4.1 ppts q-o-q and 4.6 ppts y-o-y. Grade A office supply in the CBD area is greatly limited with prime buildings such as Saigon Center, Deutsches Haus, having vacant space of less than 500sqm. Grade A average asking rent continued to rise 2.2% q-o-q and 8.7% y-o-y, reaching 45.9 US$/sqm/month. This average asking rent has recovered to the same level of pre-Covid 2019.
Meanwhile, although there is new supply, the average vacancy rate of Grade B remained stable around 9.5%, down by only 0.2 ppts q-o-q and 0.3 ppts y-o-y. The average asking rent of Grade B slightly improved, which is almost unchanged compared to last quarter and up by 3.1%, reaching the level of US$25.9/sqm/month.
Together with the economy growth, the net absorption rate of the whole market also showed positive signal with total new leasing area for Grade A and Grade B of 19,000 sqm and 18,000 sqm, accordingly. Whereby, total new lease area of the first three quarters of 2022 reached 60,000sqm, almost back to the net absorption rate of pre-pandemic in 2019 (~61,000sqm)
Tenants in Finance – Banking industry makes up more than 50% of new transaction within the quarter, followed by Services, Manufacturing, and Information Technology. Ms. Thanh Pham, Associate Director – Research & Consulting Department - CBRE Vietnam commented: “Information Technology is recently a fast-developing industry thanks to the enormous foreign investment. With strong financial capability, the proportion of this tenant group has grown much bigger with average leasing area of over 1,000sqm”. For leasing purpose, relocation still plays the major role with 41% of total transaction while expansion also improved their share to 39%.
With the positive signal from the office market, many office projects actively went back to reconstruction, bringing a new vibrant face for the city. Most of the new pipeline comes from Grade A buildings with total supply of approximately 183,000sqm, which makes up about 85% of new supply until 2023. Vacancy rate of Grade A is forecasted to increase to 13% in 2022 and 18% in 2023, 13% and 11% for Grade B in those 2 years if construction progresses as expectation. The average rent of Grade A is expected to reduce in 2023 due to new supply from non-CBD areas, while the average rent of Grade B will continue to stabilize.
Source: CBRE Vietnam, Research & Consulting, Q3 2022.
Asking rent is net of service charge and VAT.
Ho Chi Minh City Retail MarketTotal retail sales of consumer goods and services in the first 9 months of 2022 in HCMC had larger scale and higher growth rate than the same period in many recent years, reaching VND 805,000 billion and up 26% over the same period last year. However, the size of Vietnam's total retail sales of consumer goods and services in the first 9 months of 2022 is estimated at only about 84% under normal conditions unaffected by the Covid-19 pandemic.
In Q3/2022, in HCMC, the average asking price on the ground floor and first floor of shopping centers in the CBD area reached US$185-250/sqm/month, increased by 52.1% y-o-y, more than 5 times higher than the rent in the non-CBD area (US$38/sqm/month) (Rent is excluding VAT and service charge).
Note: Asking rent is calculated for Ground Floor and First Floor, excluding VAT and Service charge.
Source: CBRE Vietnam Research & Consulting, Q3/2022.
HCMC recorded improved vacancy rates in both CBD and non-CBD areas compared to the previous quarter. Specifically, the occupancy rate in the third quarter in the central area reached nearly 93.8%, up 1.0 ppts q-o-q. Meanwhile, the vacancy rate of the non-CBD area of HCMC was 11.4%, down 1.2 ppts q-o-q. However, compared to the same period last year, the vacancy rate recorded an upward trend of 4.3 ppts y-o-y in the CBD.
Commenting on the operation of the retail market in the first 9 months of 2022, Ms. Thanh Pham, Associate Director, Research and Consulting Department, CBRE Vietnam said: “The asking rent in the CBD area is still high with an upward momentum, especially in prime locations as foreign retailers are entering and expanding their businesses in the Vietnamese market. CBRE also noted that the vacancy rate tends to decrease slightly in the non-CBD area as some brands shift the trend of expansion towards non-CBD area and the shopping centers are changing the tenant’s category to match the shopping demand and brand expansion after COVID-19.”
In Q3/2022, the market continued to witness the expansion of foreign investors with the appearance of several international brands in the fashion, sports, and F&B industries. In the central area of District 1, there are new activities of a series of famous brands such as McLaren, Beverly Hills Polo Club, ViinRiic Galeries De Parfumes, Maestro, De Obelly and Sohee. At the same time, in September 2022, Decathlon was also officially opened at Van Hanh Mall, District 10 and Korean fashion brand 8seconds opened at 1st floor, Aqua City shopping mall, Dong Nai.
Regarding future supply, HCMC is expected to receive 1 new supply by the end of this year with 35,000sqm NLA from Thiso Shopping Center in Thu Duc City, and 144,000sqm NLA in the period of 2023-2024.
CBRE recorded a positive growth in the number of leasing inquiries, especially focusing on categories such as Food Service (F&B), Fashion & Accessories, and Lifestyle, accounting for nearly 87% of the total number of request inquiries. The Food and Beverage (F&B) sector continues to rank first in the number of total leasing inquiries with a 26% q-o-q increase since the beginning of 2022.
Sharing about the market prospect, Ms. Thanh Pham said: “The asking price in the prime area of the city will continue to increase in the coming time. With the increasing interest of foreign retailers in the Vietnamese market, brands need to seize the opportunity for presence expansion.”. In addition, as the rising inflation will have a negative impact on consumer spending, the leading retailers are forecasted to face more pressure and their revenues might not be as high as expected.
HCMC Condominium MarketIn Q3 2022, after a supply surge with more than 15,000 units in the previous quarter, HCMC recorded a sharp decrease in the new supply, with only 2,851 condos opened for sale, down 80% q-o-q, but 49% y-o-y higher. Most of the new launches or the next launches of existing projects only provided a relatively limited number of products, averaging 200 products/projects in this quarter. In terms of location, the new supply was mainly concentrated in the East and the South of HCMC.
Although the new supply of Q3 2022 saw a decrease, the total supply in the first nine months of 2022 did witness an increase of 142% compared to the first nine months of 2021, 59% compared to the first nine months of 2020 and reached nearly 83% of new supply in the first nine months of 2019 – the time before the outbreak of the pandemic. This showed a gradual recovery signal of the condominium market in HCMC.
The high-end segment continued to dominate the market for the past three years, accounting for 76% of new supply this quarter. The luxury segment accounted for 13% with projects located in District 1, 2 and 7. The mid-end segment had only one project launched in District 9, while the affordable segment continued to disappear from the market since 2019. The trend of buyers shifting their search for products to the suburbs or neighboring provinces such as Binh Duong and Dong Nai continues to increase, causing the market in these areas to become more and more active in recent times, with many new projects from reputable developers.
Sources: CBRE Vietnam Research & Consulting, Q3 2022.
The recent improvement in price of new projects and the smaller in market share of mid-end segment in the primary market have driven relentless price growth throughout the recent quarters. The average primary price in the whole market reached US$2,545 psm, up by 3.4% q-o-q and 12% y-o-y. In particular, the luxury segment had the highest price growth compared to the previous quarter, up by 9% q-o-q, mainly because the newly launched projects are in prime areas of HCMC.
The third quarter of 2022 recorded 6,726 sold units. Although the quarterly sold units decreased by 36% q-o-q due to low new supply, the number of units sold in Q3 continued to be higher 2.4 times than the new supply. This proves that the demand for condominium in HCMC is still very high despite the constantly growing selling price.
The total number of units sold in the first nine months of 2022 was 18,520 condominiums, nearly double that number in the first nine months of 2021, up 73% compared to the first nine months of 2020 and reaching nearly 77% of the sold units in the first nine months of 2019 – the time before the outbreak of the pandemic.
Sources: CBRE Vietnam Research & Consulting, Q3 2022.
Average Primary Price: US$ psm (excluding VAT and quoted on NSA), represents projects available for sale in the primary market at reporting quarter.
It is expected that in Q4 2022, HCMC will welcome about 1,822 new condominiums from 11 projects (65% will mainly be in the East of HCMC), bringing the total new supply expected in 2022 to 20,054 units. In particular, the high-end and luxury segments will continue to lead the new launch in the last three months of this year, with 66% of new supply in the high-end segment, 31% in the luxury segment and only 3% in the mid-end segment.
The asking price is expected to continue to increase, but at a slower rate than in previous quarters. Based on historical data and the future market outlook, the primary price may continue to increase at 3-4% per year in the period 2022-2024.
It is predicted that in the last three months of 2022, the market will continue to face many difficulties and challenges including
- Supply will continue to be limited, especially in the mid-end and affordable segments. For home buyers there will not be many options because most of the new supply will mainly be in the high-end segment or above.
- Although the credit tightening policy is gradually being eased, access to capital is still extremely difficult for both individual investors and institutional investors (project developers). The difficulty in accessing bank loans combined with the house prices growth will impact the liquidity. However, limited supply and high demand will stimulate the absorption in the market at a positive level.
- Information on the market related to legal changes (condominium ownership term, application of property taxes, etc.) as well as the recent investigations into the misconduct of developers may affect the buyer sentiment.
According to Ms. Duong Thuy Dung, Executive Director, CBRE Vietnam: "At this time, investors should aim for medium and long-term investment, limit swing trading, prepare a concrete plan on cash flow, limit borrowings and always plan for a longer liquidity period. Investors should also carefully check the legal status of the project because there are many products on the market today do not have clear legalities, affecting the investment prospect. For home buyers, since interest rate tends to increase, developer's sales policy is also an important factor to consider before making the decision."
Notes on CBRE condominium ranking criteria:
1. Ultra-luxury: projects that have primary prices over US$12,000 psm
2. Luxury: projects that have primary prices US$4,000 psm to US$12,000 psm
3. High-end: projects that have primary prices from US$2,000 psm to US$4,000 psm
4. Mid-end: projects that have primary prices from US$1,000 psm to US$2,000 psm
5. Affordable: projects that have primary prices under US$1,000 psm
(Selling price excludes VAT)
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2022 revenue). The company has approximately 115,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.