CBRE event hears animated retail real estate market in Hanoi and Ho Chi Minh City compares favorably with other regional cities.
In terms of the number of retail projects and square meters in the pipeline, Hanoi and Ho Chi Minh City stack up well against their regional neighbors, with Hanoi in 7th position, Mr. Richard Leech, Executive Director of CBRE Vietnam, told the Retail Real Estate Market Update 2015 event, which discussed the latest trends in and outlook for the retail real estate market from the perspective of occupiers, developers and investors and was held on October 8. Most of the other cities ahead of Hanoi are in China, including the two leaders, Beijing and Shenzhen. Ho Chi Minh City, meanwhile, is expecting at least five new projects in 2015.
Vietnamese development compared with other Asia-Pacific cities, 2015
Source: CBRE, Vietnam MarketView, Q1/2015
“Vietnam’s retail market has never appeared more attractive to foreign retailers and foreign retail developers, given the country’s young population, rising disposable income and quickly expanding middle class,” Mr. Leech said. “Strong demographics coupled with a growing macro-economy and new infrastructure developments have caught the attention of some of the region’s largest retail giants, who now compete fiercely with emerging domestic players.”
By the end of 2015 it is expected that Hanoi will have approximately 840,000 sq m of formal retail space and Ho Chi Minh City 600,000 sq m, CBRE estimates.
Retail space in Hanoi and Ho Chi Minh City, 2011- 2016
Source: CBRE Vietnam
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 $95 per sq m in the CBD and approximately $37 in non-CBD locations, while Hanoi rents are approximately $81 per sq m in the CBD and $28 in non-CBD locations. Ho Chi Minh City vacancies are less than 10 per cent compared to more than 15 per cent in Hanoi.
Retail Rental Rates and Vacancy Rates in Hanoi and Ho Chi Minh City
Source: CBRE Vietnam, Q3/2015
New supply that came on line in 2014 was dominated by Lotte in the north of Vietnam and by Aeon in the south. Both retail giants, from South Korea and Japan respectively, opened multiple locations in Vietnam and will continue to expand with more stores and shopping center developments in 2015, Mr. Leech said.
Both cities currently have urban railway lines under construction. Metro Line No. 1 in Ho Chi Minh City, expected to open in 2019, will link together several shopping centers in the CBD with the affluent area of District 2.
Metro maps of Hanoi and Ho Chi Minh City and major retail projects
Source: CBRE Vietnam Q3/2015
With the completion of new shopping centers now under construction, such as 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, Mr. Leech went on.
The development of new shopping centers and a relaxing of regulations on foreigners participating in retail have resulted in an influx of new tenants in the sector. In 2014 Hanoi saw 27 new brand names come to new developments. New brands to the Ho Chi Minh City retail scene in 2014 included Robins Department Store, part of the Central Group from Thailand, Lalique, and the UK’s Marks & Spencer, among others.
Since January 2015, under its WTO commitments, Vietnam opened up its retail sector to foreign players. There are of course some restricted goods and foreign retailers in some cases that will have to satisfy local authorities with their Economic Needs Test (ENT), but generally the news has been welcomed by retailers and developers, especially those from the ASEAN region, who have shown greater interest in entering the market.
Apart from the aggressive expansion plans for foreign and local retailers in Vietnam in 2015, one of the most noticeable trends is “affordability”. The emergence of new “bazaars”, such as Saigon Square, containing hundreds of small kiosks, rent-free shopping malls for Vietnamese brands such as Hoa Binh Green City in Hanoi, and low-price supermarkets are all reinforcing the trend that consumers demand better value for money, according to Mr. Leech.
Food & Beverage outlets were the stand out sector in 2014 and will continue to dominate high streets. CBRE explained that nearly 50 per cent of its enquiries for retail space were 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. They are now more sophisticated and knowledgeable and place value on an overall retail experience when shopping, he explained. 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.