The Shophouse Conundrum: Why Are These Retail Spaces Failing to Sell?

Fire Sale: Exploring the Struggles of Shophouses in Vietnam

Once a lucrative investment opportunity, shophouses in Vietnam are now facing a challenging period. Located in residential areas and occupying around 0.5-1% of the total construction area, these shophouses were considered a “golden goose” by many experts and investors. However, due to a lack of tenants, many of these units are now up for sale.

In Hanoi, shophouses at the HH Linh Dam complex in Hoang Mai are facing a dire situation, with many units remaining vacant despite months of advertising. Situated on Linh Duong Street, amidst a bustling neighborhood with 12 buildings housing thousands of residents, these shophouses were once highly sought-after. Owners are now offering them for sale at prices ranging from VND 50-60 million/m2.

In the Hoang Liet ward of Hoang Mai, several shophouses are also up for sale, with asking prices of VND 8.75 billion for a 150m2 unit (approximately VND 58 million/m2) and VND 5.85 billion for a 63m2 unit (approximately VND 92 million/m2).

Similar situations can be observed in other parts of Hanoi, such as a shophouse in Kien Hung, Ha Dong, listed for sale at VND 10.9 billion for 182m2 (around VND 60 million/m2).

A survey by PropertyGuru Vietnam revealed that shophouses in a project in Dai Tu, Hoang Mai, have been advertised for rent for several months but remain vacant. This trend is also evident in a project in the Nam Thang Long urban area, where rental prices range from VND 20-30 million/month for spaces between 80-120m2, yet tenants are hard to come by.

Additionally, shophouses on Pham Van Dong Street in Co Nhue 1, Bac Tu Liem, with areas of 60m2 and 120m2 and rental prices of VND 19 million and VND 30 million per month, respectively, have been vacant for the past two months.

The economic downturn has taken a toll on these shophouses, with many businesses unable to stay afloat, ultimately returning the units to their owners. With no tenants in sight, owners are now looking to sell and recoup their investments.

Nguyen Ngoc Lan, owner of a shophouse in HH Linh Dam, shared that she used to rent out her unit for VND 15-20 million per month before the pandemic. However, for the past two years, her shophouse has remained vacant due to the impact of COVID-19.

“I’ve decided to sell as I need the money for other matters, and the business has been sluggish,” she said.

Nguyen Thuy Linh, a shophouse owner in Thanh Xuan, has been struggling to find a tenant for over a year. In late 2019, she purchased a 20m2 shophouse in Ha Dong for over VND 1.5 billion, expecting a smooth rental process due to the large number of apartments in the complex. She initially rented it out to a restaurant for VND 15 million per month, but the tenant returned the unit due to sluggish business.

With no tenants in sight, Linh has decided to sell the shophouse to recoup her investment and focus on other business ventures.

Nguyen Thuong, a broker specializing in commercial real estate and shophouses in residential projects, shared that the market for shophouses is at an all-time low. Rental prices have dropped, and the return on investment for these units is meager, ranging from 2-4% at best. As a result, sales prices have stagnated or even decreased compared to the initial purchase price.

“A 120-130m2 shophouse with a 50-year ownership term may cost VND 12-15 billion, but the average rental price is only VND 30 million per month, making it unattractive to investors,” Thuong explained.

Understanding the Struggles: A Complex Web of Factors

JLL Vietnam’s report sheds light on the challenges faced by shophouses, highlighting their dependence on the population scale within projects. In reality, 80% of customers are project residents, and external customers are scarce due to a lack of connection with external commercial spaces. Additionally, some projects intentionally limit access to outsiders for security reasons, further impacting the businesses operating in these shophouses.

Consequently, if a project has a small resident population, shophouses will inevitably struggle to attract customers.

For shophouses to thrive, they must meet specific criteria, including well-invested projects, high population density, and a balanced ratio of apartments to shophouses.

Reselling shophouses is also challenging due to their limited ownership term of 50 years, and their value primarily lies in rental income. If the rental expectations are not met, reselling on the secondary market becomes more difficult.

Thu Hang, a senior director at Savills Hanoi, attributes the low rental yields of commercial townhouses to competition from shopping centers. Retailers are increasingly drawn to malls due to their high foot traffic, professional marketing campaigns, and stable rental rates.

In contrast, commercial townhouses and shophouses are often individually owned and operated, leading to unstable rental rates influenced by real estate market fluctuations. This unpredictability makes them less appealing to potential tenants.

According to a Hanoi-based beverage business, another factor contributing to the sluggish performance of shophouses is the overabundance of commercial space in residential projects. With supermarkets, malls, and traditional markets located within a 1.5-3 km radius, residents often opt for these diverse shopping destinations instead of the monotonous shophouses at the base of their apartment buildings. Only in cases where projects are located 6-10 km away from such commercial hubs do shophouses stand a chance of attracting residents.

Furthermore, some residential projects lack proper management of the commercial areas on the ground floor. Essential services like maintenance, cleaning, and security are not adequately maintained, negatively impacting the quality and attractiveness of these spaces for potential business tenants.