DTZ Research: Challenging year ahead for property market in Ho Chi Minh City

22 Apr
VNRE – • Office occupancy rates saw a slight increase because of limited new supply, but rents continue to slide 
• Slower performance in retail sector against previous quarter, especially in nonCBD areas affected by low traffic and where the bulk of pipeline supply is located 
• Demand for condominiums remains weak despite declining lending rates
Vietnam: Notwithstanding a moderation in inflation and credit loosening measures enacted by the government, the property market as a whole remained subdued as a poor showing of economic indicators – including a sluggish GDP growth of only 4% in Q1 2012 – and other factors kept consumer and investor confidence low.
Office rents continue to slide despite increase in occupancy rate 
According to a recent report released by DTZ Research, office rents in Ho Chi Minh City (HCMC) have not shown any significant improvement in Q1 2012.
Office supply in HCMC at the end of Q1 2012 is estimated at approximately 1.38 million sq m net lettable area (NLA). The increase in supply over the quarter was only around 1,400 sq m NLA, with no major completions, compared with 42,000 sq m of new supply in the same period last year. That may be a reflection of the slowdown of many construction projects as economic, market and funding conditions affect the ability and desire of developers to continue a fast pace of construction. 
As a result of the lack of new space coming online, average occupancy across all grades of office accommodation increased slightly to 81.3%, up from 81.0% at the end of 2011. There is approximately 259,000 sq m of vacant office space across HCMC. 
Grade A occupancy remained lowest compared to other grades of offices, although this rate increased to 76.0%, up from 74.0% in Q4 2011. As there has been no new Grade A stock completed since the Bitexco Financial Tower in Q4 2010, the city’s most recent Grade A properties have been filling up while established Grade A properties have been maintaining occupancy rates. These newer properties have been largely attracting tenants from Grade B buildings by offering them competitive rates against the tenants’ current accommodation. As a result, Grade B occupancy rates have fallen by half a percentage point to 82.0%, while Grade C accommodation remained at an average of 83.0%.
Rental rates so far in 2012 followed the downward trend of 2011 throughout all grades. Average rents softened by 1.5% quarter-on-quarter (q-o-q) to USD23.40 per sq m per month. Average Grade A rents also fell from USD33.00 to USD32.60 per sq m per month in the quarter. 
Le Nguyen Thi Thuy Trang, Manager of DTZ Occupier Services, commented: “After a tough 2011 for landlords, office rents have not shown any significant improvement. While we expect occupancy rates to continue increasing slowly, we anticipate that pipeline supply will outstrip net absorption thus leading to a softening of rents and another challenging year ahead.” 
Occupancy rates fall and downward pressure on rents in retail sector 
There were no major shopping centre or department store completions in HCMC in this quarter, with the only retail centre completed being the Central Mall in District 8 which provided approximately 11,000 sq m GFA of supermarket, food and beverage retailing. As at the end of March 2012, there was a total supply of approximately 235,000 sq m of shopping centre accommodation and 97,000 sq m of department store accommodation. 
Average occupancy rate fell throughout HCMC by 0.8% during Q1 2012 to approximately 88.8%. This drop was driven by non-CBD areas where retailers are finding low retail traffic. 
Average department store and shopping centre rents showed a softening over the quarter, reflecting increased competition from landlords to attract and retain tenants. The downward pressure on rents is particularly pronounced in non-CBD locations, where most of the pipelinesupply (around 70% before 2014) is located. In these areas many retailers are still unsure of the capacity and willingness of local populations to spend in modern retail centres. 
KP Singh, General Director of DTZ Vietnam, commented:  “Though rents will continue to moderate over 2012 as international retailers cut back on expansion plans due to global economic issues, there are nonetheless some positive signs which could justify cautious optimism for the industry. In Q1 2012, the Vietnam consumer spending rose by 21.8% compared with the same period last year, while the total retail sale is targeted at USD$113 billion for 2012, an increase of 18.5% compared with 2011. Increased consumption ought to bode well for the sector.”
Demand for condominiums low despite declining of lending rates
There were a number of new completions in the quarter, totalling 3,700 units. The highest profile condominium completion was Xi Riverside in District 2, which provided over 250 units to the market. At the end of Q1 2012, the stock of condominiums in HCMC is approximately 54,000 units from 205 completed projects. 
In terms of market conditions there was little change in the new year, with demand levels very low despite finance rates on bank loans reducing to around 18.5% on average. 
As a result of this, developers have delayed launching units for sale, with no major launches during the quarter. The construction progress of many residential projects has also ground to a halt, as developers continued to be pressurised by issues surrounding finance.
Asking prices in Q1 2012 continued to fall as a result of market conditions. Throughout the city, average unit prices softened by around 2%, driven by reductions in the high- and mid-end segments of the market. Developers are increasingly likely to offer discounts, while further incentives remain in the market to entice buyers. At present this has not stimulated the market. Asking prices during the quarter for affordable condominiums ranged from USD500 to USD950 per sq m and between USD950 and USD1,700 per sq m for mid-end units. High-end accommodation prices were priced upwards of USD1,700 per sq m.
If all future projects at the planning stage or under construction are delivered, this will provide approximately 60,000 new units before the end of 2014. However it is likely that delays will occur given market conditions. The condominium market outlook remains bleak for the rest of the year, as purchasers continue to wait for both finance rates and prices to fall further. 

One Response to “DTZ Research: Challenging year ahead for property market in Ho Chi Minh City”

  1. Property in Delhi April 22, 2012 at 5:51 pm #

    You have posted innovative news, keep it up. Thanks for sharing.

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