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Greater demand for retail real estate

Released at: 13:49, 01/04/2018

Greater demand for retail real estate

Photo: Viet Tuan

Retail real estate has boomed in recent years but clouds loom on the horizon.

by Hong Nhung

Eight months prior to its official opening in August 2016, the Saigon Centre in Ho Chi Minh City was fully leased by a wide range of famous global cosmetics and fashion brands, including Chanel, Coach, Kate Spade, and Topshop. “The 55,000 sq m retail mall is now fully leased to over 150 tenants, including an anchor tenant, Takashimaya, a leading Japanese department store, as well as over 400 local and international brands,” Mr. Linson Lim, President of Keppel Land Vietnam, the Singaporean developer of the Saigon Centre, told VET.

Vietnam’s retail market has enjoyed robust growth over the last few years and this upward momentum is expected to continue into the immediate future, given the country’s stable economic growth, rapid urbanization, and burgeoning middle-class with increasing disposable incomes and evolving lifestyles. This will certainly lead to increasing demand for retail space in major cities, especially Ho Chi Minh City, with high occupancy rates expected not only at the Saigon Centre but also at other shopping malls.

Boom in retail

Located strategically on one of the city’s main thoroughfares, Le Loi, the Saigon Centre has been a strong draw for both local as well as international shoppers and visitors in the year or so since opening its doors. Besides its prime location, its success is also due to its strategic tenant mix and thoughtful service offerings. There is also a good mix of premium and affordable luxury brands, many of which are new in Vietnam.

Mr. Lim said the partnership with leading Japanese department store, Takashimaya, as the anchor tenant, further entrenched Saigon Centre’s position as the leading live-work-play destination in the city. “Saigon Centre achieved a total footfall of about 10 million visitors in the first year of its opening and gross turnover grew 21 per cent year-on-year in the fourth quarter of 2017,” he said. The company is also developing a five-story retail podium at Estella Heights, a mixed-use development from Keppel Land and Tien Phuoc in District 2 slated to open in the fourth quarter of this year and offer 37,000 sq m of prime retail space.

Occupancy rates at shopping centers in both Ho Chi Minh City and Hanoi remained at very healthy levels by the close of 2017, of more than 80 per cent, according to a recent report from CBRE Vietnam. Space in the CBD remained keenly sought after, leading to a very low vacancy rate of just 2-3 per cent. “Due to young demographics, food and beverages (F&B), entertainment, and fast fashion are the three most active retail categories in the market,” said Ms. Duong Thuy Dung, Director of Research and Consulting at CBRE Vietnam.

While the heat from H&M and Zara’s entry into Vietnam last year is yet to cool down, other well-known international fashion houses have also arrived. Desigual, Trendiano, and Coach opened their first stores at the Saigon Centre. H:Connect became a new tenant at Crescent Mall, and foreign F&B companies such as PastaMania (Singapore), Chamichi (Thailand), and Hokkaido Baked Cheese Tart (Japan), convenience store giant 7-Eleven and newcomer GS25 from South Korea, as well as a raft of Taiwanese milk tea brands have been flooding into the market.

Crescent Mall and SC VivoCity are located away from the busy CBD, at the prosperous Phu My Hung Urban Area in District 7, where expansion is still possible. Managed by Savills Vietnam, Crescent Mall was the first international-standard shopping center in Vietnam when it opened in 2011. “We are now offering168 stores with occupancy rate expected at 90 per cent compared to 86 and 84 per cent in 2016 and 2015, respectively,” said Ms. Joanna S. Gasgonia, General Manager of Crescent Mall. “We are proud to record double digit growth in customer traffic and turnover sales in 2017 versus 2016.”

To meet greater demand, construction began last year of Crescent Mall Phase 2, which will have a retail podium and a 25-story office block. Its 50 to 60 stores will include international brands, 40 per cent of which will be F&B and entertainment, Ms. Gasgonia added.

Since opening in 2015, SC VivoCity, a destination lifestyle mall built by another long-term Singaporean developer, Mapletree, has also performed well. “Our 62,000 sq m mall is well above 95 per cent occupancy with some transitional space,” Ms. Amy Ng, Regional CEO, Group Retail and Singapore Commercial at Mapletree Investments told VET. “Footfall has been increasing annually, with over 180 tenants offering a wide variety of F&B, fashion and accessories, health and beauty, and other lifestyle products and brands.”

Vietnamese real estate giant Vingroup listed its shopping mall operator Vincom Retail on the Ho Chi Minh Stock Exchange in November last year, with market capitalization at $3.38 billion. The largest shopping mall network in the country, with 41 in 22 cities and provinces, Vincom Retail accounts for some 60 per cent of shopping mall space in Ho Chi Minh City and Hanoi. It plans to open an additional 30 shopping centers this year, heading towards its target of 200 by 2021.

HCMC retail, historical asking rents

Source: CBRE Vietnam,Q4 2017

HCMC retail, historical occupancy rate

Source: CBRE Vietnam, Q4 2017

Bright prospects

As at the end of 2017, cumulative retail stock totaled about 2 million sq m gross floor area (GFA), with 55 shopping malls in Ho Chi Minh City and Hanoi, or approximately 2.6 times higher than in 2012, according to JLL Vietnam. Of total retail space, shopping centers accounted for more than 85 per cent. The average size of malls has grown from 15,000-20,000 sq m to 30,000-40,000 sq m since 2012.

The shopping center format is forecast to continue expanding rapidly. CBRE Vietnam has noted that five new projects with more than 200,000 sq m net leasable area (NLA) in Ho Chi Minh City and eight new projects with 157,000 sq m NLA in Hanoi are expected to come online this year. This would be among the largest number of projects to be launched in a year in Hanoi, just behind 2013 in terms of area. Most of these projects are also located in rapidly-developing areas, both in terms of residential and commercial development, and boast good infrastructure and are expected to be attractive to both tenants and shoppers. 

Most under-construction shopping malls, however, are in non-CBD districts, such as Su Van Hanh Mall (90,000 sq m GFA) in District 10, and Landmark 81 (47,000 sq m GFA) in Binh Thanh district in Ho Chi Minh City, and Vincom Lieu Giai (30,000 sq m GFA) in Hanoi’s Ba Dinh district and the Discovery Complex (26,000 sq m GFA) in Cau Giay district. The non-CBD sub-market has been targeted by retail giants such as Lotte, AEON, and Vingroup, which generally provide a wide range of affordable products and services.

Within the next three years, “the retail market will be more competitive as a large amount of supply from community retail podiums will be launched,” said Mr. Stephen Wyatt, Country Head of JLL Vietnam. E-commerce, which had recently received much attention from investors and consumers, will undoubtedly develop rapidly, with revenue predicted to rise by 60 per cent in 2020 compared to 2017. “While e-commerce has become increasingly popular over the last few years, the impact of this type on traditional malls in Vietnam has not been clear as yet,” Mr. Wyatt went on. “Vietnam’s retail market is still at the stage where most buyers still prefer an in-store shopping experience.”

Problems ahead

Vietnamese people love to go outside with family and friends to eat, shop, or just meet, so bricks-and-mortar retail spaces will remain a popular option for the time being. According to Mr. Wyatt, the impact of e-commerce on traditional models may become more obvious as it becomes more sophisticated and retail developers must prepare for that eventuality.

It is also important that the pace of any change is sustainable, as there will be more foreign brands entering Vietnam, more malls being built, and a growing e-commerce market. “The challenge is not only for mall managers but also for our tenants to constantly push for their brands and products to be ‘top-of-mind’ and keep up with shifting consumer preferences,” Ms. Ng said. “In this light, we have always adopted a collaborative approach with our tenants and business partners to work hand-in-hand to penetrate the market together.”

It may be challenging for retailers seeking high-quality space in a prime location given the fact that future supply in such locations is expected to be limited in Ho Chi Minh City and Hanoi. The market share of the department store sub-segment has been declining due to the fierce competition resulting from meeting changes in the shopping needs of Vietnamese consumers, who have begun preferring integrated shopping malls with multiple features.

Despite new supply coming online every year, “both cities still lack quality leasable space, such as shopping centers with nice layouts, good exposure, and a coherent tenant mix,” said Ms. Dung. “The increase in retail podiums in the market has raised concerns among developers in terms of attracting tenants and among existing retailers about rapid expansion. Having a good layout for both retail and condominium towers while maintaining reasonable economies of scale are becoming major challenges. Flexible leasing structures should become more common as a way of supporting retailers.”

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