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Avison Young Vietnam releases the fourth quarter 2023 Quarterly Knowledge Report of Vietnam Real Estate
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Commercial real estate sectors, including industrial, office and retail, stay resilient throughout 2023 while the housing sector witnesses another quiet year.
Ho Chi Minh City, Vietnam – Avison Young Vietnam today released its fourth quarter 2023 Quarterly Knowledge Report of Vietnam Real Estate. The report reveals the agility of the Vietnam real estate market despite global economic challenges and some domestic flaws. While the level of impact and the speed of recovery vary in each real estate sector, the general prospect for Vietnam real estate market is positive. Market sentiment has improved since the last shackle in 2022. Some revised laws on real estate have been ratified and the long-awaited Land Law 2023 is expected to be approved in early 2024.
“The continuous improvement in administrative and legal frameworks, and the measures to stabilize the real estate market have brought back investor confidence to some extent,” – said David Jackson, Principal and CEO of Avison Young Vietnam. According to Jackson, investors have been searching and expanding their real estate portfolio in Vietnam during the market slowdown in the last two years. Sectors of interests include residential, office, retail, industrial, and hospitality. However, some persistent legal and financial bottlenecks have contributed to the slowed transactions. “With new laws and regulations in place, it is expected that market improvement will be seen more vigorously from 2025 onwards,” – he added.
A smooth-sailing year for industrial real estate
Though uncertainties put the brakes on some industrial real estate transactions, in overall the sector experienced a relatively smooth year of 2023 with growth indicators. Nationwide, land rents remained stable, even slightly increased in Hanoi, with high occupancy rates. 2023 also witnessed the commencement or establishment of new projects, promising to introduce new, high-quality supply of industrial land and facilities in the next couple of years.
As of the end of 2023, the average rent of industrial land in HCMC was recorded at 232 USD/sqm/term. Tenants filled 93% of the total area, a slight y-o-y increase of 2%. In Hanoi, the average rents hit 188 USD/sqm/term with 90% of occupancy. The local authority of both cities have set out their plans to transform the existing industrial parks into new and modern industrial models to serve hi-tech and hi-value industries. Examples include the establishment of the HCMC Semiconductor Electronics Center and the Vietnam-Korea Techno Park Complex in Hanoi.
Chi Vu – Senior Manager, Industrial Services at Avison Young Vietnam commented: “With the ongoing relocation of manufacturing and logistic facilities to Vietnam, the Northern industrial real estate markets of Hai Phong, Quang Ninh, Hung Yen, Ha Nam, Vinh Phuc, and Thai Binh will be the key beneficiaries. In the South of Vietnam, the three provinces of Ba Ria – Vung Tau, Binh Phuoc, and Tay Ninh can be the future industrial hot spots. Some mid to long-term trends which drive changes in the supply of industrial properties include sustainability, consumer-driven retail market, acceleration of e-commerce, shift from just-in-time to just-in-case inventory management, and supply chain diversification.”
Grade A office supplies increased sharply, rents in both grades stalled
In contrast to the upward trend in previous years, office rents in Vietnam slightly decreased in 2023. In the last quarter of 2023, Grade A and B offices in the CBD of HCMC had average rental prices of 60.5 USD/sqm/month and 35.5 USD/sqm/month respectively, a drop of 2.4% (grade A) and 1.4% (grade B) y-o-y. Similarly, Grade A and B rents in central Hanoi were at 34.5 USD/sqm/month and 25.8 USD/sqm/month, slightly down compared to the end of 2022. The occupancy rates in these two markets remained relatively balanced.
The market slowdown and increasing competition due to new office buildings started operation are the main causes of declining office rents. Business uncertainties, a shift to floating structure for costs and personnel, health and wellness requirements, and ESG commitment are driving tenants’ decision, be it a new lease, expansion, or relocation. In the second half of 2023, HCMC recorded some high-quality offices namely The HallMark, The Mett, and VPBank Saigon Tower. These projects contributed to the market’s overall leasable area of nearly 2 million square meters, with Grade A spaces accounting for about 60%. The Hanoi market meanwhile added 28,588 sqm of Grade A office spaces to new supply in the Lotte Mall West Lake commercial complex, launched in September 2023.
The office sector is prone to fluctuations in the market and workforce. However, it is traditionally a long-term income-generating asset, particularly in Vietnam, where the business environment is vibrant, and the in-person work culture remains popular. The downward adjustment in rents can be, in the short term, helpful for retaining and attracting tenants. However, it is expected that pricing will continue its upward trend, followed by more modern office buildings that meet sustainability criteria in the market.
Ebb and flow of retail spaces
The weakened consumption power in the past two years has led to a flee from business premises of townhouses and small-scale commercial podiums. As for commercial centers, fueled by financial capabilities, foreign retailers have been seizing suitable land funds and investing in new developments throughout 2023.
By the end of 2023, rents in shopping malls in the center of HCMC ranged from 46-300 USD/sqm/month, an increase of 4% y-o-y. Beyond the central area, rents also increased yet at a lower margin, 2% and reached 20-115 USD/sqm/month. The overall market occupancy remained stable, partly due to the strategic conversion of some podium spaces to office rentals when the retail leasing performance became less effective. In 2023 alone, nearly 100,000 sqm of commercial floors were brought into operation, including Emart Phan Huy Ich, Hung Vuong Plaza, and Central Premium Mall. In Hanoi, the highlight of Q4/2023 was Lotte Mall West Lake project in Tay Ho district, with leasable areas of up to 73,700 sqm. The mall achieved 100% occupancy within a short time span after launch.
Trang Do – Manager, Retail Services at Avison Young Vietnam said: “Changes in consumers behaviour, especially among the Millenials and generation Z will surely drive the transformation in retail spaces. While there are some resistance to change, especially in small business premises, positive developments have been recorded in the segments of commercial centers and retail complexes. Retailers will increasingly focus on raising their service quality and combining omni-channel sales as the land funds for commercial and service purposes are more limited in the next one to three years. We expect a fierce competition in retail, when e-commerce, cashless payment, and deeper penetration of international retailers come into full swing.”
Another quiet year for condominiums and landed properties across the country
In the condominium and landed property sector, challenges endured throughout the year of 2023. Supply imbalances, increasing land prices and construction costs, financial bottleneck and mismatched expectations among market participants dampened liquidation, making 2023 a timid year for the residential sector.
In HCMC, there were 6,500 new units open for sales in the last months of 2023, a decrease of more than 70% y-o-y. More than 90% of those apartments, equivalent to 5,850 units, belong to the mid-end segment with an average selling price of 1,500 – 3,500 USD/sqm. Meanwhile, in Hanoi, the average selling price across segments saw a 5% increase by the end of 2023 and ranging from 2,240 to 4,075 USD/sqm. The introduction of budget-friendly projects like Tecco Garden and Moonlight 1 highlighted new supply in the past year, along with other high-end projects such as Canopy Residence, The Westeria, Lumi Hanoi, or The Zurich.
It is expected that the residential sector will see an uptick from 2025 onwards, thanks to the strong intervention from the Vietnamese government in the last two years and when new real estate laws take effect. Moreover, M&A activities will bring new market players through capital contribution agreements or project share purchases.
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For more information:
Thu Nguyen [email protected], Senior Manager - Marketing & Communications, Vietnam: +84 908 638 484
Dung Le [email protected], Senior Executive - Marketing & Communications, Vietnam: +84 965 357 741