The Soaring Rent is Eating Up Profits: Brands Continue to ‘Burn’ Money on Prime Locations in Ho Chi Minh City’s Center

The closure of Starbucks Reserve Hàn Thuyên on August 26 due to failed rental negotiations has sparked interest. The initial rent was $21,000/month, but the landlord requested an increase to $30,000/month after 7 years, which Starbucks refused. This has led to a debate about the high cost of prime real estate in Ho Chi Minh City and the challenges faced by businesses, especially F&B brands, in securing desirable locations.

According to market experts, the new rent requested for the 212.5 sqm property on Hàn Thuyên street is not considered expensive, as these limited spaces always have potential tenants or buyers interested.

Vacant but not discounted

Since the COVID-19 pandemic, many prime locations in the city center, such as Nguyễn Huệ, Nguyễn Du, Lê Lợi, Hai Bà Trưng, and Ngô Đức Kế streets, have been vacant for extended periods due to high rents, sometimes reaching hundreds of millions of VND per month. Additionally, the nature of these spaces only suits a few very large brands with strong financial backing, and not all products can be sold in these areas.

Notably, despite being vacant and advertised for rent for a long time, rental prices in the city center, particularly on Nguyễn Du Street, have increased by about 19-20%. Rents in this area range from a few dozen million to 450 million VND per month, depending on the size and location of the property.

Similarly, rental prices in the area around the Notre Dame Cathedral, the city post office, and the 30/4 Park have also increased by about 19%, with rents ranging from 550 million to over a billion VND.

One of the most prominent vacant locations in District 1 since 2021 is 75 Nguyễn Du, at the intersection with Pasteur Street. This 650 sqm property is advertised for rent at 300 million VND per month.

Before 2021, this location was a popular spot for Highlands Coffee. However, when the COVID-19 pandemic hit, the coffee chain left, reportedly due to failed rental negotiations. This is one of the few vacant properties in the prime district that has remained unoccupied for an extended period.

Market insiders explain that real estate in this area is not just a typical asset but a “legacy asset,” with limited transactions.

The owners of these properties have substantial financial resources, and the monthly rent of a few hundred million VND is not a significant amount to them. They are willing to forgo this income for an extended period to maintain and enhance the value of their real estate assets rather than lowering the rent.

According to expert Đinh Minh Tuấn, the valuation of these properties is often based on their rental value. A low rent can decrease the property’s value, while a high rent can increase it. This is why the landlord of 11-13 Hàn Thuyên street refused to accept Starbucks’ negotiated rent and instead opted for a higher valuation of $30,000/month, with a selling price of 600 billion VND.

On the other hand, some landlords are willing to accept lower rents, but only for well-known and reputable brands.

A real estate broker in District 1 successfully negotiated a rent that was nearly 15% lower than the market rate for a property at the intersection of Trần Quang Khải and Nguyễn Hữu Cầu streets. The tenant is an up-and-coming coffee brand, and the landlord was convinced by the brand’s popularity and the unique design of the store, which would enhance the value of the property.

Data from a real estate website shows that, despite the sluggish business environment, rental prices for shophouses in Ho Chi Minh City continued to rise in early 2024, with the highest increase of up to 40% across many districts, including Thủ Đức city.

The continuous expansion of major F&B chains like Highlands, Katinat, Trung Nguyên Legend, and Starbucks into prime locations has intensified the competition for these coveted spaces.

Why pay high rents?

Mr. Đỗ Duy Thanh, FnB Director, recently shared at an F&B forum organized by iPos.vn that finding suitable premises is one of the biggest challenges for food and beverage businesses.

While there are many vacant properties on the market, finding one that meets all the requirements in terms of location and price is difficult. A suitable location may have an inconvenient layout, and a property with a convenient location may have an unaffordable rent. As a result, brands are constantly searching for the right space, and ironically, there are also many vacant properties waiting for tenants.

Ideally, rent should account for no more than 30% of the total business expenses to ensure profitability.

In reality, rental prices in prime locations in District 1 and District 3, such as Hàn Thuyên, Nguyễn Du, Alexander De Rhodes, Turtle Lake, and Ngã 6 Phù Đổng, are often three to four times higher than the revenue generated by the business. Many chains have to subsidize losses due to high rental costs but are willing to pay for the marketing and brand exposure these locations offer.

A notable example is the building at 325 Lý Tự Trọng Street, located at Ngã 6 Phù Đổng, with a rental price of about 700 million VND per month. This location has always been highly sought-after by brands, and recently, DannyGreen, a high-tech agricultural enterprise, secured the lease.

Previously, MIA, a brand specializing in luggage and handbags, occupied this three-sided property for about a year, paying a rent of $26,000/month. MIA vacated the premises in March 2024, and in mid-July 2024, a new agricultural produce store opened there.

This location was once home to the PhinDeli coffee chain, which reportedly paid a rent of $25,000/month. The property was vacant for the longest period during the COVID-19 outbreak in 2021, and the rent has increased since then.

Mr. Lâm Bội Minh, the founder of Phúc Long tea and coffee, shared that in 2014, when the Phúc Long chain was still developing, he decided to open the 10th store at Ngã 6 Phù Đổng. At that time, with a young brand like Phúc Long, renting this location was a careful consideration, as the rent was about $14,000, and there was no parking available.

However, this decision was made to build the brand, and it paid off. The Phúc Long store at this location was always full from morning to night, and the brand became a shining star in the F&B industry.

After five years, Phúc Long moved out when the rent increased to $25,000/month. A well-known soymilk brand immediately took its place.

Ms. Vũ Kim Hạnh, Chairman of the Vietnam High-Quality Goods Business Association, shared that if you consider the cost of renting a billboard in the city center, it’s not much different from renting a flagship store where consumers can experience your products. For flagships, the effectiveness of the business is calculated differently and is not solely based on financial figures.

DannyGreen, the new tenant at Ngã 6 Phù Đổng, emphasized that their decision to open a store in this prime location underscores their commitment to making high-quality products more accessible to a wider range of Vietnamese consumers. This prominent location not only ensures a large customer base but also aligns with their vision of promoting a healthy lifestyle and organic consumption in urban areas.

Mr. Phan Minh Thông, the founder of Phúc Sinh Group, shared that the more prominent the store’s location, the higher the cost. However, for brand building purposes, chains are willing to accept this trade-off. For example, K Coffee, a Phúc Sinh brand, has been operating for ten years with multiple outlets. Still, it was only when the store on Hai Bà Trưng Street (District 1) opened that the brand gained widespread recognition, thanks to its prime location.

“Therefore, even if it is not yet profitable, the business efficiency is excellent because this store helps us build our brand. There are stores that must be opened at the right place and the right time to help the company promote its image and build its brand,” Mr. Thông said.