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The serviced apartment sector in HCMC saw a double-digit decline in both occupancy and rents in the second quarter of this year and a further decline is projected in the months to come along with a fall in demand.

Limited supply in the last three years has allowed the sector to enjoy good results with facilities often running with high occupancy. Grade A buildings ran up to 97% occupancy in the first quarter of this year. However, the economic turbulence changed the segment in the second quarter.

Rudolf Hever, senior manager of research and consultancy services of CB Richard Ellis Co. (CBRE), said at a market highlight presentation held in HCMC on Sunday that vacancy was up across all grades, especially in Grade A at 14%, in the second quarter.

Average asking rents were down by 11% to around US$32 per square meter per month in Grade A buildings, by 4% to US$26 in Grade B buildings and by 6% to US$19.5 in Grade C buildings against the previous quarter, according to the property market research company.

Hever said Grade A buildings were suffering as tenants switch to cheaper serviced apartments to save costs. Meanwhile, Grade B and C buildings are also facing difficulties as expatriates leave Vietnam or relocate to non-serviced apartments.

The market is hit as most serviced apartments in the city are designed for expats who have reportedly been returning home as multinational companies trim budgets for staff housing given the economic downturn.

Hever said landlords had recognized tenant predicaments and had responded with rent reductions, incentives and shorter leases, in some cases as little as one night making competition with hotels for guests.

“Landlords have become more flexible, offering weekly or even daily rates, making serviced apartments a fierce competitor to four and five star hotels,” Hever said, adding that the segment was now competing based on age of property, facilities and décor.

Hever projected a drop in demand for serviced apartments and downward trends in rents and occupancy in the months to come.

Moreover, the small market will be impacted as new supplies are on the way, plus the increasing stock of apartments for lease in several districts in the city will create more competition for serviced apartments.

Among the future supply, the Intercontinental Service Residences of Kumho Asiana Plaza project in downtown HCMC and the Crescent being developed in the new urban town Phu My Hung in HCMC’s District 7 will enter the market this year, adding another 560 serviced apartments to the supply.

There are 48 buildings from grades A to C, including 2,400 international and local serviced apartments, for lease in HCMC, mainly in the central business districts.

Source: The Saigon Times

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