Will Commercial Real Estate Be Less Depressing in 2024?

According to Cushman & Wakefield, at the beginning of 2024, the occupancy rate is expected to be high in newly opened projects in Ho Chi Minh City.

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Cushman & Wakefield recently reported that in 2023, the market will welcome two new projects (Hung Vuong Plaza and Thiso Mall Truong Chinh – Phan Huy Ich), contributing a total of 45,500 square meters to the total retail supply. Currently, the North and East regions are the two areas with the most retail supply, accounting for 26% and 25% of the total supply, respectively. With relatively stable occupancy rates, thanks to good occupancy rates in recently opened projects.

In addition, 2023 will see many events in the retail market, with many planned or implemented renovation projects.

This unit also pointed out that in the context of the strong development of multi-channel shopping, retailers and investors are increasingly focusing on creating shopping spaces to provide comfortable and diverse experiences for customers to feel the products, while developing online shopping channels to maximize revenue.

According to Savills, by the fourth quarter of 2023, the profit of Vietnam’s luxury retailers reached VND 3.8 trillion ($156.6 million), a 270% increase over the same period last year. The value of the luxury retail market in Vietnam reached $957 million, with an annual projected growth rate of 3.2% by 2028.

According to Savills, fashion is the largest segment with an expected market value of $298.6 million in 2024. However, suitable retail spaces for luxury brands are scarce and demand exceeds supply.

Supply growth averaged 2% in the past five years. Shopping centers accounted for 63% of the total supply, equivalent to 1.1 million square meters, while retail podiums accounted for 17% and grocery centers accounted for 3%. Since 2019, the supply of grocery stores has remained stable, while shopping centers have increased by 2% per year. Retail podiums have the highest average annual growth rate of 7%.

Regarding rental prices, by the fourth quarter of 2023, gross ground floor rents increased by 3% quarterly and 15% annually to VND 1,169,000 per square meter per month. Ground floor rents in the central area reached VND 3.2 million per square meter per month, 79% higher than the outlying areas where rents reached VND 1.1 million per square meter per month.

This unit also pointed out that the retail space rental market in Ho Chi Minh City is still stable, despite the difficult situation of the real estate industry in general. The growth of the middle class has stimulated the development of industries such as food and beverage, entertainment, etc.

Photo: Ha Vy

Ms. Giang Huynh, Head of Research and S22M Savills Ho Chi Minh City, said that the large price difference between the central and outlying areas is a unique characteristic of the Ho Chi Minh City market.

According to Giang, rent prices in the central area are always high because the supply in this area is very low, accounting for less than 10% of the total market supply, while the demand for presence in the central areas of brands and businesses is very high. This has made investors in projects in the central area confident in maintaining high prices, and rental capacity has always remained almost absolute.

The retail podium segment is facing significant challenges. The occupancy rate in this segment has dropped from 100% in 2010 to 80% in the third quarter of 2023. Rent prices also decreased by 6% annually, reaching VND 800,000 per square meter per month.

One reason for this decline is that most of the retail podium supply in recent years has been concentrated in the downtown or suburban areas, in low to mid-range apartment projects. In addition, suboptimal design and ineffective marketing operations of retail outlets in podiums are also factors leading to this situation.

Savills’ report shows that rental transactions mainly come from the F&B, fashion, health and beauty, and entertainment sectors. With a high population density and more diverse rental prices, the outlying areas still attract large expansion transactions.

Ms. Cao Thi Thanh Huong, Senior Manager, Market Research Department, Savills Ho Chi Minh City said that positive economic growth in the country is driving new brands to continue expanding in the outlying areas.

According to a Savills Global study, by 2050, the urban population living in cities is expected to double, accounting for 70% of the world’s population. In developing countries, rapid urbanization creates major challenges in housing and infrastructure – but also opportunities for real estate investors to seek growth in the rental sector.

In the Asia-Pacific region, including Vietnam, many areas will continue to witness impressive growth in the future. This trend is driven by a young population and income growth. This will continue to promote the activities of shopping centers and other commercial establishments.