Serviced apartments 'spread' to the suburbs with FDI capital flow

The relationship between serviced apartments and FDI

According to Mr. Troy Griffiths, Deputy Managing Director of Savills Vietnam, in general, foreign direct investment (FDI) flows into Vietnam have been quite strong in the past 3-4 years.

"Although FDI has slowed down a bit this year, if we look at the figures of the previous three years, we see that there has always been about 2-4 billion USD of newly registered FDI, mainly focusing on power plants, liquefied gas and energy. Putting aside these large energy projects, looking at the amount of newly registered FDI this year, FDI is still positive," said the Savills expert.

Returning to the nature of FDI, Mr. Troy Griffiths sees that FDI trends are changing, when Vietnam used to be a country that attracted foreign investment thanks to its competitive costs in many fields and factors. Now, FDI has shifted to focus on server colocation services and supply chain optimization, especially in the electronics industry.

"This brings greater benefits to the economy. At that time, the more foreign managers come to work, the more demand for serviced apartments increases," said Savills experts.

Mr. Troy Griffiths, Deputy Managing Director of Savills Vietnam

Comparing the growth trends between the two largest cities in the country, Savills experts said that in Hanoi, the serviced apartment market is mainly in the two segments of class A and B. Demand is currently expanding to neighboring areas of Hanoi such as Bac Ninh, Hung Yen and Hai Duong, thanks to the development of infrastructure connecting Hanoi and these cities.

In Ho Chi Minh City, the demand for serviced apartments is more diverse with many projects in the C-segment. The group of serviced apartment tenants in Ho Chi Minh City has many income levels, including experts from many different fields and industries, creating many different needs. This creates a difference between the serviced apartment market in Ho Chi Minh City compared to Hanoi.

According to him, even in a seemingly difficult period like COVID-19, the serviced apartment market is still operating well. In Hanoi, prices and performance are almost unaffected. Although the market in Ho Chi Minh City has recorded a slight decrease, it is currently recovering very well. Therefore, it can be said that this is an attractive type of real estate with stable operations.

Fierce competition between rental types

According to Savills, demand for serviced apartments is driven by FDI inflows, but FDI has shown signs of slowing down in Ho Chi Minh City, so the future outlook will be challenging. According to the Ho Chi Minh City Statistics Office, in the first 6 months of 2024, total FDI capital reached 1.1 billion USD, down 19% year-on-year. Newly registered FDI reached 192 million USD from 597 new projects.

Long-term demand from businesses remains stable, but growth may be difficult amid fierce competition from rental apartments. Savills also said that more than 40,000 rental apartments have been delivered in the past three years. The main tenants of serviced apartments are foreign experts working in industrial parks and businesses in Ho Chi Minh City, Long An, Dong Nai and Binh Duong. To optimize capacity, projects combine long-term and short-term rentals.

Evaluating this type, Ms. Cao Thi Thanh Huong, Senior Manager of Savills Ho Chi Minh City Research Department, said that the serviced apartment type has a good performance with the return of foreign experts. Old projects that have been renovated will create a competitive advantage compared to rental apartments. With high demand for affordable accommodation, studio and one-bedroom apartments are always the choice. In the past 5 years, Savills recorded 1,849 apartments from 48 new Grade B & C projects, and investors focused on developing studio and one-bedroom apartments with 85% market share of new supply.

Studio apartments are popular with foreign tenants.

Previously, Savills' Q2/2024 market report also stated that the supply reached 8,490 units, stable quarter-on-quarter and increased by 21% year-on-year. Future supply in Ho Chi Minh City is expected to be limited. By 2025, 5 projects are expected to join with about 500 units; 63% of which will be located in District 1 from three Grade B & C projects.

The occupancy rate of the serviced apartment segment in Ho Chi Minh City reached 79%, down 1 percentage point quarter-on-quarter and 4 percentage points year-on-year due to low demand for short-term stays in the low season. The rental price reached VND513,000/m2/month, up 1% quarter-on-quarter and unchanged year-on-year.

Rents across 14 Grade A & B projects increased by an average of 3% QoQ as rents have been fixed for over a year and developers have stopped promotional incentives. Nine of the 14 projects (74% of supply) have relatively high occupancy rates, reaching at least 80%.

Source: https://www.congluan.vn/can-ho-dich-vu-lan-rong-ra-vung-ven-cung-voi-su-phat-trien-cua-dong-von-fdi-post308480.html