Industrial, office, and retail sectors in the commercial real estate market remained resilient throughout 2023, while the housing sector had a quiet year, as stated in Avison Young Vietnam’s fourth quarter 2023 quarterly knowledge report on Vietnam’s real estate sector, which was released on January 12.
Despite the global economic challenges and certain domestic flaws, the country’s real estate market showed agility. Each sector had varying levels of impact and speed of recovery, but overall, the outlook for Vietnam’s real estate market is positive.
Market sentiment has improved since 2022. Revised laws on real estate have been ratified, and the long-awaited Land Law 2023 is expected to be approved in early 2024.
With the ongoing relocation of manufacturing and logistic facilities to Vietnam, northern industrial real estate markets such as Hai Phong, Quang Ninh, Hung Yen, Ha Nam, Vinh Phuc, and Thai Binh will be the key beneficiaries. In the south, the three provinces of Ba Ria-Vung Tau, Binh Phuoc, and Tay Ninh could be future industrial hotspots. Some mid to long-term trends driving changes in the supply of industrial properties include sustainability, the consumer-driven retail market, acceleration of e-commerce, shifts from just-in-time to just-in-case inventory management, and supply chain diversification.”
Overall, the industrial real estate sector had a smooth 2023 with growth indicators. Though uncertainties affected some transactions, nationwide land rents remained stable, and even increased slightly in Hanoi, with high occupancy rates.
Several new projects commenced or were established in 2023, promising to introduce new and high-quality supply of industrial land and facilities in the coming years.
As of the end of 2023, the average rent for industrial land in Ho Chi Minh City was $232 per sq m per term, with a 93% occupancy rate, a slight YoY increase of 2%.
In Hanoi, the average rent was $188 per sq m per term, with a 90% occupancy rate.
Local authorities in both cities have plans to transform existing industrial parks into new and modern industrial models to serve hi-tech and high-value industries. Examples include the Ho Chi Minh City Semiconductor Electronics Center and the Vietnam-Korea Techno Park Complex in Hanoi.
Office rents in Vietnam experienced a slight decline in 2023, in contrast to the upward trend of previous years. In the fourth quarter, Grade A and B office rental prices in Ho Chi Minh City’s CBD were $60.5 per sq m per month and $35.5 per sq m per month, respectively, a decline of 2.4% and 1.4% YoY. Similarly, Grade A and B rents in central Hanoi were $34.5 per sq m per month and $25.8 per sq m per month, respectively, slightly lower than at the end of 2022. Occupancy rates in both markets remained relatively balanced.
Changes in consumer behavior, especially among Millennials and Generation Z, are sure to drive the transformation in retail space. While there is some resistance to change, especially in small business premises, positive developments have been recorded in commercial centers and retail complexes. Retailers will increasingly focus on raising their service quality and combining omni-channel sales as land funds for commercial and service purposes become more limited in the next one to three years. We expect fierce competition in retail when e-commerce, cashless payments, and deeper penetration of international retailers come into full swing.”
The residential sector faced challenges throughout 2023, including supply imbalances, increasing land prices and construction costs, financial bottlenecks, and mismatched expectations among market participants.
In Ho Chi Minh City, over 6,500 new units were opened for sale in the final months of 2023, a decline of over 70% YoY. The majority of apartments, 5,850 units, belonged to the mid-end segment with an average selling price of $1,500-3,500 per sq m.
In Hanoi, the average selling price across segments increased by 5% compared to the end of 2023, ranging from $2,240-4,075 per sq m. Budget-friendly projects like Tecco Garden and Moonlight 1, along with high-end projects such as Canopy Residence, The Westeria, Lumi Hanoi, and The Zurich, contributed to new supply in the past year.
It is anticipated that the residential sector will pick up from 2025 onwards with the intervention of the Vietnamese Government and new real estate laws taking effect. Additionally, merger and acquisition activities will bring new market players through capital contribution agreements or project share purchases.
According to Mr. David Jackson, Principal and CEO of Avison Young Vietnam, continuous improvements in administrative and legal frameworks, as well as measures to stabilize the real estate market, have restored investor confidence to some extent. Investors have been expanding their real estate portfolios in Vietnam, particularly in sectors such as residential, office, retail, industrial, and hospitality. However, legal and financial bottlenecks have slowed down transactions. The market is expected to see more vigorous improvement from 2025 onwards with the implementation of new laws and regulations.