VNRE - Demand for office space has remained largely stable over Q1 and Q2, but pipeline supply and slower economy forecast to depress rents
Vietnam: With the exception of the office sector, which proved relatively resilient, Ho Chi Minh City’s retail and residential markets have been adversely affected by weak consumer spending-power and an interplay of financial and supply-side factors, according to DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL).
Office
Demand for office space has remained largely stable through Q1 and Q2, as evident from a corresponding stability in occupancy rates. Leasing activity was mainly from existing occupants taking advantage of the current low rents to upgrade to better quality offices.
With no new space added to or taken out of these two market segments, the occupancy rate for Grade B offices remained at 82.0%, while that of Grade A offices – though the lowest amongst the various grades – increased marginally to 77.7%, up from 76% in Q1.
The occupancy rate for Grade C offices declined to 81.3%, down from 83.0% in Q1. However, that was due to new completions which collectively introduced 23,000 sq m into the market, raising the total office stock in Ho Chi Minh City to an approximate 1.41 million sq m net lettable area (NLA), up from 1.38 million sq m NLA in the first quarter. The increase in total stock led to a slight decline in average occupancy sector-wide, which recorded a drop from 81.3% in Q1 to 80.0% in Q2, but which does not necessarily reflect a drop in demand.
By and large, rental rates remained stationary in Q2. Grade A rents softened by 0.2% to USD32.45 per sq m per month, while Grade B and Grade C rents stabilised at USD20.54 and USD17.11 respectively.
If all pipeline office developments are finished on schedule, over 270,000 sq m of space will be injected into the market over the course of the year. Although there are likely to be delays in some projects, the eventual supply will still be considerably higher than net absorption.
Le Nguyen Thi Thuy Trang, Manager of DTZ Occupier Services, said: “Conditions are expected to be challenging for the rest of the year with slower economic growth and new supply coming on stream. We therefore forecast rents to fall in H2.”
Retail
With consumer spending power affected by the economic slowdown, average department store and shopping centre rents continued to soften by about 4.0% over Q2. Although the retail sales value of goods and services rose 6.5% year-on-year (y-o-y) in the H1, it is a slower increase compared to previous periods and belies a fall of 0.6% in June.
KP Singh, General Director of DTZ Vietnam, said: “We expect rents to continue to soften due to the strong pipeline supply. If all projects are completed as scheduled by 2014, we would expect an additional new retail supply of approximately 770,000 sq m, which is more than double the existing stock. This includes around 175,000 sq m forecast to be completed in the remainder of 2012. Rents outside the CBD will be hit harder, where around 70% of the pipeline supply will be located.”
With no new space added or taken from the retail stock, the average occupancy rate in Ho Chi Minh City remained the same at approximately 88.7% in Q2, reflecting a stable demand over the first half of the year. However, this percentage is part of a sustained downtrend that began in 2011, and the challenge for the retail sector going forward is whether the occupancy rate can be revived to healthy levels above 90% as observed in the first half of 2011.
KP Singh said: “With interest rates and inflation rate easing, and a USD1.4bn tax break package approved recently to support businesses, there could be some support for the retail sector. In addition, the expansion activities of foreign retailers in the country – such as Japan’s AEON’s two commercial centres planned for 2014 – could also catalyse activity in the sector.”
Residential
The residential market in Ho Chi Minh City has not picked up despite a decline in lending and bank deposit rates. By and large, financial credit is still not available to most home buyers, while those with sufficient funds still view real estate investment as less attractive. Interest rates on bank loans reduced to around 15% – 17%, down from 18.5% in the first quarter, while bank deposit rates have fallen to as low as 9%.
Market sentiment from buyers was not helped by a government announcement in March that owners of houses and apartments would be required to pay a land tax from this year forward, a further discouragement for potential home buyers.
Asking prices in Q2 fell slightly. Throughout the city, average unit prices softened by around 1%, due to reductions in the high- and mid-end segments of the market. Developers are therefore increasingly likely to offer more discounts to stimulate purchases. Asking prices in Q2 for affordable condominiums ranged from USD500 to USD950 per sq m and between USD950 and USD1,700 per sq m for mid-end units. High-end accommodation prices were priced upwards of USD1,700 per sq m.
As a result of weak market conditions, many developers have delayed launching projects for sale, with no major launches during the quarter. The construction progress of many residential projects has ground to a halt, as developers continued to be pressurised by issues surrounding finance. As at end Q2, the stock of condominiums in Ho Chi Minh City is approximately 55,400 units from 209 completed projects, recording a relatively small increase from 54,000 units in Q1.
The substantial pipeline supply will also weigh down on prices. If all future projects at the planning stage or under construction are delivered, this will provide approximately 60,000 new units before the end of 2014, doubling the existing stock. Major upcoming condominium developments include Vina Square, Diamond Island, Estella, Sunrise City, Everich II, Richland Hill, Kenton Residence and City Garden.
KP Singh said: “The condominium market outlook remains bleak for the rest of the year, as purchasers continue to wait for both finance rates and prices to fall further.”
Via DTZ Vietnam | Photo courtesy of BangHuan.
- Pipeline supply of retail space and weaker consumer spending power expected to pull retail rents downwards
- Decline in lending and bank deposit rates fail to stimulate demand in residential sector which continues to stagnate
Vietnam: With the exception of the office sector, which proved relatively resilient, Ho Chi Minh City’s retail and residential markets have been adversely affected by weak consumer spending-power and an interplay of financial and supply-side factors, according to DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL).
Office
Demand for office space has remained largely stable through Q1 and Q2, as evident from a corresponding stability in occupancy rates. Leasing activity was mainly from existing occupants taking advantage of the current low rents to upgrade to better quality offices.
With no new space added to or taken out of these two market segments, the occupancy rate for Grade B offices remained at 82.0%, while that of Grade A offices – though the lowest amongst the various grades – increased marginally to 77.7%, up from 76% in Q1.
The occupancy rate for Grade C offices declined to 81.3%, down from 83.0% in Q1. However, that was due to new completions which collectively introduced 23,000 sq m into the market, raising the total office stock in Ho Chi Minh City to an approximate 1.41 million sq m net lettable area (NLA), up from 1.38 million sq m NLA in the first quarter. The increase in total stock led to a slight decline in average occupancy sector-wide, which recorded a drop from 81.3% in Q1 to 80.0% in Q2, but which does not necessarily reflect a drop in demand.
By and large, rental rates remained stationary in Q2. Grade A rents softened by 0.2% to USD32.45 per sq m per month, while Grade B and Grade C rents stabilised at USD20.54 and USD17.11 respectively.
If all pipeline office developments are finished on schedule, over 270,000 sq m of space will be injected into the market over the course of the year. Although there are likely to be delays in some projects, the eventual supply will still be considerably higher than net absorption.
Le Nguyen Thi Thuy Trang, Manager of DTZ Occupier Services, said: “Conditions are expected to be challenging for the rest of the year with slower economic growth and new supply coming on stream. We therefore forecast rents to fall in H2.”
Retail
With consumer spending power affected by the economic slowdown, average department store and shopping centre rents continued to soften by about 4.0% over Q2. Although the retail sales value of goods and services rose 6.5% year-on-year (y-o-y) in the H1, it is a slower increase compared to previous periods and belies a fall of 0.6% in June.
KP Singh, General Director of DTZ Vietnam, said: “We expect rents to continue to soften due to the strong pipeline supply. If all projects are completed as scheduled by 2014, we would expect an additional new retail supply of approximately 770,000 sq m, which is more than double the existing stock. This includes around 175,000 sq m forecast to be completed in the remainder of 2012. Rents outside the CBD will be hit harder, where around 70% of the pipeline supply will be located.”
With no new space added or taken from the retail stock, the average occupancy rate in Ho Chi Minh City remained the same at approximately 88.7% in Q2, reflecting a stable demand over the first half of the year. However, this percentage is part of a sustained downtrend that began in 2011, and the challenge for the retail sector going forward is whether the occupancy rate can be revived to healthy levels above 90% as observed in the first half of 2011.
KP Singh said: “With interest rates and inflation rate easing, and a USD1.4bn tax break package approved recently to support businesses, there could be some support for the retail sector. In addition, the expansion activities of foreign retailers in the country – such as Japan’s AEON’s two commercial centres planned for 2014 – could also catalyse activity in the sector.”
Residential
The residential market in Ho Chi Minh City has not picked up despite a decline in lending and bank deposit rates. By and large, financial credit is still not available to most home buyers, while those with sufficient funds still view real estate investment as less attractive. Interest rates on bank loans reduced to around 15% – 17%, down from 18.5% in the first quarter, while bank deposit rates have fallen to as low as 9%.
Market sentiment from buyers was not helped by a government announcement in March that owners of houses and apartments would be required to pay a land tax from this year forward, a further discouragement for potential home buyers.
Asking prices in Q2 fell slightly. Throughout the city, average unit prices softened by around 1%, due to reductions in the high- and mid-end segments of the market. Developers are therefore increasingly likely to offer more discounts to stimulate purchases. Asking prices in Q2 for affordable condominiums ranged from USD500 to USD950 per sq m and between USD950 and USD1,700 per sq m for mid-end units. High-end accommodation prices were priced upwards of USD1,700 per sq m.
As a result of weak market conditions, many developers have delayed launching projects for sale, with no major launches during the quarter. The construction progress of many residential projects has ground to a halt, as developers continued to be pressurised by issues surrounding finance. As at end Q2, the stock of condominiums in Ho Chi Minh City is approximately 55,400 units from 209 completed projects, recording a relatively small increase from 54,000 units in Q1.
The substantial pipeline supply will also weigh down on prices. If all future projects at the planning stage or under construction are delivered, this will provide approximately 60,000 new units before the end of 2014, doubling the existing stock. Major upcoming condominium developments include Vina Square, Diamond Island, Estella, Sunrise City, Everich II, Richland Hill, Kenton Residence and City Garden.
KP Singh said: “The condominium market outlook remains bleak for the rest of the year, as purchasers continue to wait for both finance rates and prices to fall further.”
Via DTZ Vietnam | Photo courtesy of BangHuan.
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