Supply of retail space grew in 2014 and will continue to do so this year, triggering fierce competition for a share of consumer spending.
Retail Sales and Services had grown to approximately $140 billion by the end of 2014 but overall growth has slowed significantly in the last few years, according to CBRE’s most recent Retail Market Update to retailers, retail property developers, and service providers.
Mr. Richard Leech, Executive Director of CBRE Vietnam, said that with the positive effect the stable economy is having on consumer confidence, together with lower oil prices and lower interest rates, spending should improve in 2015. “Lower oil prices result in lower transportation costs, so the costs of goods sold should be lower,” he said.
Supply of retail space has grown in the major markets of Hanoi and Ho Chi Minh City and will continue to grow during 2015. By the end of the year it is expected that Hanoi will have approximately 900,000 sq m of formal retail space and Ho Chi Minh City 600,000 sq m.
In terms of the number of projects and square meters in the pipeline, Hanoi and Ho Chi Minh City stack up well against their regional neighbors, with Hanoi in seventh position. Most of the other cities ahead of the capital are in China.
Ho Chi Minh City is expecting at least five new projects in 2015, two of which are being developed by SSG, a megamall project by Vingroup, and the eagerly awaited Vivo City, due to open in District 7 in April.
Apart from having more supply of formal retail space than Ho Chi Minh City, Hanoi also has softer rents and higher vacancies. Ho Chi Minh City rentals have remained stable, at approximately $100 per sq m in the CBD and approximately $40 per sq m in non-CBD locations. Ho Chi Minh City vacancies are less than 8 per cent, compared to Hanoi with more than 20 per cent.
New supply that came on line in 2014 was dominated by Lotte in the north and by Aeon in the south. Both these retail giants, from South Korea and Japan respectively, opened multiple locations in Vietnam and will continue to expand in 2015.
Mr. Leech noted that the Metro Line No. 1, which is currently under construction, will link together several shopping centers in Ho Chi Minh City’s CBD and District 2. “With the completion of The One, Saigon Centre Phase 2, and the Tax Plaza in District 1, Ho Chi Minh City shoppers can anticipate a shopping district on par with Sukhumvit Road in Bangkok or the famous Orchard Road in Singapore,” he explained.
The development of new shopping centers has resulted in an influx of new tenants to Vietnam. In 2014 Hanoi saw 27 new brand names arrive in new developments such as the refurbished Trang Tien Plaza and the Royal City Megamall in Thanh Xuan district. New brands to the Ho Chi Minh City retail scene in 2014 included Robins Department Store, Lalique, and Marks and Spencer.
Apart from the aggressive expansion plans of foreign and local retailers in Vietnam in 2015, one of the most noticeable trends is “affordability”. The emergence of new bazaars, containing hundreds of small kiosks, rent-free shopping malls such as Hoa Binh Green City, and low price supermarkets are all reinforcing the trend that consumers demand better value for money.
Food and beverage (F&B) outlets were the stand out sector during 2014 and will continue to dominate high streets. CBRE explained that nearly 50 per cent of its enquiries for retail space where in this sector and that the enquiries were more likely to be for fast casual dining rather than high-end dining.
“The F&B sector is leading the charge in terms of occupying ‘unconventional’ retail space and grouping together in specific nodes such as West Lake in Hanoi and Crescent Lake in Ho Chi Minh City,” Mr. Leech explained.
Competition for a share of the consumer’s wallet is fierce, he said. Consumers are now more sophisticated and knowledgeable and place value on an overall retail experience when shopping.
Shopping center managers will need to have a good understanding of what their customers want, leverage the data they can collect from apps and digital marketing, provide more and better quality entertainment facilities, and collaborate more with retailers.