Vietnam's commercial real estate has great appeal to international investors

Holds many advantages over regional markets

According to Savills research in the first half of 2023, Ho Chi Minh City and Hanoi ranked 12th and 17th respectively out of 21 cities studied in terms of tenant costs. This shows that office rental prices in these two cities are still competitive compared to many other markets in the region.

In fact, the average rental price for Grade A premises in Hanoi in the quarter reached 41.6 USD/m2/month, less than half that of other markets such as Seoul (97.6 USD/m2/month), Singapore (100.1 USD/m2/month) and Beijing (101.7 USD/m2/month).

With low rental prices, Ho Chi Minh City and Hanoi are considered two potential markets in Asia with office occupancy rates always at a high level.

Specifically, in the Savills Vietnam Real Estate Price Index (SPPI) report recently released, it shows that in the second quarter of 2023, in Hanoi, the occupancy rate of Class A offices reached 82%, Class B reached 85% and Class C reached 92%. Meanwhile, in Ho Chi Minh City, the average occupancy rate of the whole market simultaneously remained at 92%.

Vietnam commercial real estate has great attraction to international investors image 1 — High-end office buildings in Vietnam are experiencing high occupancy rates.

Meanwhile, demand for office space has been consistently recorded, reflecting the dynamic business activities of enterprises along with the explosive development of new sectors in both cities. High occupancy rates and competitive rental costs have highlighted the attractiveness of the office rental market for enterprises looking for opportunities to enter the Asian market in general and Vietnam in particular.

According to the European Chamber of Commerce in Vietnam's report on the Business Climate Index in the second quarter of 2023, Vietnam's PCI index decreased by 4.5% quarter-on-quarter to 43.5 due to a decline in confidence in the current challenging market context.

In addition, the outlook for the third quarter of 2023 is that the Business Environment Index will not have a major improvement. However, the Vietnamese market is still considered attractive to foreign investors.

In a survey conducted by the European Chamber of Commerce, it was found that despite economic challenges, foreign investors still expect Vietnam to enter the market in the near future. This reinforces the position of one-third of businesses in the survey as one of the top five investment destinations, demonstrating the long-term attractiveness of the domestic market.

Retail space continues to transform

In the Asia-Pacific region, the luxury retail space has seen a strong recovery in the first half of 2023, thanks to the return of tourism and retailers seeking alternative business premises. In the final months of 2023, the luxury retail space is expected to continue to recover in most Asia-Pacific markets.

In Vietnam, especially in the two centers of Hanoi and Ho Chi Minh City, high-end retail rents are recorded at competitive levels compared to other markets in Asia-Pacific.

The average rental price of high-end retail space in Hanoi reached 75 USD/m2/month and in Ho Chi Minh City was 152.8 USD/m2/month, lower than other markets such as Seoul (152.8 USD/m2/month), Singapore (365 USD/m2/month) and the leading market Hong Kong (787.8 USD/m2/month).

Vietnam commercial real estate has great attraction to international investors image 2 — The retail space market will also change in the coming time.

Commenting on the retail market in Vietnam, Mr. Matthew Powell, Director, Savills Hanoi shared: “Vietnam has always been a very attractive destination for retailers. Not only for high-end brands, the retail sectors of fashion, or entertainment and dining activities still record great demand thanks to the demographic characteristics in Vietnam. The middle class and young population are driving demand for new product categories or new brands entering the market.”

This expert also said that for the high-end retail segment, stores and brands on major streets in Hanoi and Ho Chi Minh City recorded vibrant business activities. Some stores even had high operating efficiency, leading to great demand for opening more stores by high-end retailers around central streets.

Mr. Matthew analyzed that in reality, the shopping centers that have difficulty with tenants are all traditional centers, mainly focusing on sales functions. The centers that are attracting tenants today are places that show more experiential retail activities.

In other markets such as the UK, Europe and the US, shopping centres have gradually evolved into experience destinations rather than purely shopping destinations. Vietnam has a great opportunity to quickly learn from these experiences and develop flexible retail models.

Regarding retail space in townhouses, Savills experts said that the demand for prime retail space in central areas is always recorded at a high level. The situation of returning retail space on central streets in Hanoi and Ho Chi Minh City can be explained by the fact that although the space is in a prime location, it does not really meet the increasingly high requirements of brands in terms of design, technology and legality.

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