Retail space is vacant, prices are still sky high

Unsold and no discount

A recent report by Cushman & Wakefield shows that Dong Khoi Street (District 1, Ho Chi Minh City) ranks 13th in the list of the most expensive retail streets in the world. New York's Fifth Avenue (USA) is the most expensive in the world, followed by Milan's Via Monte Napoleone (Italy), and Tsim Sha Tsui Street in Hong Kong (China) is the third most expensive in the world. The report said that the rental price of premises on Dong Khoi Street is equivalent to 350 USD/m²/month. This figure increased by 17% over the same period and increased by 40% compared to before the Covid-19 pandemic. Thus, the rental price of premises on Dong Khoi Street is higher than the most expensive streets in Munich (Germany), Amsterdam (Netherlands) or Bangkok (Thailand), bringing Dong Khoi Street to 13th place in the list of the most expensive retail streets in the world.

Even though they cannot be rented out, many premises still have quite high rental prices.

In addition to Dong Khoi Street, Trang Tien Street (Hanoi) is also in the group of most expensive retail space for rent in the Asia-Pacific region. The rental price here has increased by 20% compared to the same period and 50% compared to before the pandemic, reaching nearly 300 USD/m2/month. This figure brings Trang Tien Street up three places, to 17th place in the region compared to last year.

Although it is expensive, but surveying a series of streets, "golden" and "diamond" locations in the central area of ​​Ho Chi Minh City such as Dong Khoi, Le Loi, Nguyen Hue, Nguyen Trai, Nguyen Dinh Chieu, etc., we witnessed many rental premises closed, hanging signs for rent. Notably, there are street-front townhouses that have been closed for many years but the owners refuse to reduce the rental price.

Posing as tenants, we contacted the phone number posted on a house on Dong Khoi Street through a broker named Khuong and were introduced to a 200 m² house with 1 ground floor and 7 upper floors, with a rental price of 30,000 USD/month, or about more than 700 million VND/month. When we said that the economy was difficult and asked for a discount, we were "finalized" at 25,000 USD/month. "This space has been vacant for 4 months. If you are sincere, then close the price, it cannot be reduced further," said Mr. Khuong.

The rent is high, so the shop owners also sell at high prices, so many foreign customers only come once and do not return. Businesses and landlords need to recognize this fact to change and attract international customers to return by reducing the rent. However, to reduce the rent, bank interest rates must be reduced sharply.

Mr. Hoang Tuan Anh (real estate business)

Broker Kha introduced 2 premises on Nguyen Hue Street (District 1), including a 12 m wide, 25 m long premises, with a total usable area of ​​about 700 m², quoted at 25,000 USD/month, or more than 600 million VND/month. If rented, customers must deposit 3 months in advance and sign a 3-year contract. Right next door is a commercial premises of about 1,100 m², with 2 street frontages, with a rental price of about 45,000 USD/month, or more than

1 billion VND/month. It is known that this premises was rented by a restaurant owner for 38,000 USD/month. Due to business losses, the restaurant owner returned the premises at the beginning of 2023 and has been vacant until now. "The economy is difficult, so many people are losing money in business and have to return the premises. Large premises like this are very difficult to rent. If you are sincere, you can negotiate a further reduction," said the broker.

A space right at the corner of Nguyen Thi Minh Khai - Cach Mang Thang 8 with a usable area of ​​over 1,100 m² was reported by a broker named Dat to be rented for around 1 billion VND/month. When we asked about a price reduction because the space has been vacant for nearly 2 years, Dat affirmed: "It's vacant but we can't reduce the price because of its strategic location. If you rent it, you can negotiate a discount for luck, tomorrow we'll meet the landlord directly."

On Le Loi Street (District 1), the city's "billion dollar" street, many vacant rental properties are hanging up "for rent" signs with a dense network of phone numbers. When calling to inquire about a property, the landlord said the price was 400 million VND/month for a 400 m² house with 3 floors. A real estate broker said that the rental price of properties in the center of District 1 is still very high despite the large number of vacant properties. The rental prices of properties here range from 200 to 600 million VND/month depending on the area and location. Even though the large properties have been vacant for a long time, the landlord has not reduced the price.

High price still loss compared to bank loan interest

According to Savills' assessment, in the third quarter of 2023, although the supply recorded a slight decrease, the operating capacity of retail premises for lease remained at 91%, unchanged from the quarter. Of which, premises in the area outside the center of Ho Chi Minh City accounted for 91% of the total supply. Regarding rental prices, most landlords in the central area are still confident with stable high rental prices, 3 times higher than those outside the center.

Despite sluggish business and high rents, a report by CBRE Vietnam shows that rental prices in the central area are still increasing by 1-1.5% per year. Notably, not only are prices high, but central area premises are also facing many difficulties and problems such as difficulty in obtaining business licenses, fire prevention and fighting licenses, etc. Therefore, retailers will look for more space in non-central areas to launch temporary retail stores in a short period of time. Therefore, unsold central premises are still unsold.

Mr. Hoang Tuan Anh, a real estate businessman, analyzed: The reason why the rental price is high but the landlord does not lower it is because they previously bought the house for 400 - 600 million VND/m2, a 200 m2 house costs about 100 billion VND. If the average rental price is 5%/year/property, each month they will earn 416 million VND. Meanwhile, the landlord pays 10%/year bank loan interest, which is about more than 800 million VND, losing about 400 million VND/month. When buying real estate, the landlord expects the house price to increase like 10 years ago. However, this is impossible because the real estate price in the center of Ho Chi Minh City is currently as high as China, Singapore; higher than Europe, America; several times higher than Thailand, Malaysia, Philippines... If the real estate price does not increase, the long-term rental loss will make the landlord have to sell it off.

"However, there is a paradox that business tenants at this time cannot pay 416 million VND/month for a 200 m² premises. High real estate prices and high bank interest rates mean that everyone loses money, which is why premises are closed for a long time in the central area. Take a look at the area around Ben Thanh market, which mainly serves foreign customers. The rent is high, so shop owners also sell at high prices, so many foreign customers only come once and do not return. Businesses and landlords need to recognize this fact to change and attract international customers to return by reducing the rental price of premises. However, to reduce the rental price, bank interest rates must be reduced sharply," Mr. Hoang Tuan Anh analyzed.

Dr. Su Ngoc Khuong, Deputy Director of the Institute of Informatics and Applied Economics, said that the premises in the center of Ho Chi Minh City are mainly for business in products serving international tourists. When the number of these visitors decreases and revenue decreases, the tenants no longer have a source of income and are forced to return the premises. For chain businesses, due to the decrease in revenue, they limit further expansion. Businesses will consider the cost issue, if the rental fee is too high, they will be forced to find another area to return the premises or close some branches.

According to a survey by Savills, the food and beverage industry accounts for 37% of the total retail space for lease, followed by the fashion industry with 24% market share; the remaining sectors such as health, beauty and entertainment account for 13% each.

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