Retail real estate has performed well both globally and regionallyduring 2013 and this is expected to continue in 2014. CBRE Vietnamexecutive director Richard Leech sees that the segment is bucking thedownward trend. Report by Vietnam Investment Review.
Retail is often regarded as the most exciting of all the real estatesectors, and requires specialised knowledge from sales and marketing, tosite acquisition to management to ensure success.
Vietnam has thrived on the back of good news concerning an increase inthe supply of space, the prospect of new international retail tenantsand increasing numbers of consumers, although slower than in previousyears. Conversely, the sector has been plagued by reports of storesclosing, restrictive regulations for foreign retailers and low consumerconfidence. However, considering recent economic indicators generallypointing in the right direction, consumers are slowly regainingconfidence and starting to spend again.
Turnover inretail sales services has seen robust growth of around 23 percent overthe last 10 years. However, growth has slowed since 2008 as consumershave tightened their belts and tended to buy less, buy more frequentlyand buy where they can obtain more value for money. This in turn hasaffected retailers and slowed their growth plans and their ability topay prime rents.
Tourism has remained a bright spotfor Vietnam with 6.8 million international tourist arrivals in 2012.Although tourist revenues were approximately 5.6 billion USD in 2011 inHanoi and Ho Chi Minh City combined, this is still far short of Thailandwhich received 22 million international arrivals in 2012, with thosevisitors spending almost twice as much, showing that Vietnam still hassome way to go before catching up with its neighbour.
By the end of 2013, retail supply of formal trade centres in Hanoiwill stand at around one million square metres which is more than doubleHo Chi Minh City’s 450,000sqm. Hanoi will continue to enjoy more supplythrough to 2014 as more projects come on line, bringing the total to1.5 million sq.m by the end of next year, while Ho Chi Minh City is dueto have a little over 500,000 sq.m. As a result, rents and occupancywill remain firm in Ho Chi Minh City, while in Hanoi they are likely tocome under pressure, especially in non central business districts (CBD)locations.
Although Vietnam benefits from having twomajor cities with a combined population of approximately 13 million,Hanoi has shown the most activity this year with the introduction ofthree new shopping centres: Trang Tien Plaza, Vincom Royal City Megamalland Vincom’s Times City Megamall. At least 27 new brands entered theHanoi market by opening in these new shopping centres, compared to justsix new brands arriving in Ho Chi Minh City. This made Hanoi one of themost active retail real estate markets in Asia in 2013.
New developments in Hanoi in 2014 will include the opening of thefirst Lotte Mart at Mipec Tower in Tay Son street in Dong Da districtand the Lotte Department Store in Dao Tan street in Ba Dinh district. Inaddition, Viglacera’s Thang Long Number One will open with 11,000 sq.min mid-2014.
New supply in Ho Chi Minh City during2014 should see the opening of two new projects in District 2, the firstof which should be Thao Dien Pearl’s 20,000 sq.m of gross leasable area(GLA) and Cantavil Premier with 30,000sqm of GLA, to be anchored byParkson, Big C and Lotte Cinema. In addition two megamalls should openin 2014, both with hypermarkets as their anchor tenants, these being SCVivo City (72,000sqm GLA) hosting CoopXtra in District 7 and Aeon TanPhu Celedon Shopping Mall (75,500sqm GLA) which will be home to AeonHyper.
Many of these new shopping malls aredeveloped by brand names familiar to Vietnamese customers, such asVincom, SSG, Coopmart and Lotte, and will incorporate a hypermarket orat least a large supermarket into their tenant mix to drive traffic totheir suburban locations.
Average asking rents inprime ground floor locations in the Hanoi CBD are approximately 90 USDper sq.m per month, slightly lower than Ho Chi Minh City’s 95 USD persq.m per month. However, outside of the CBD, Hanoi rents are averaging38 USD per sq.m per month which is higher than Ho Chi Minh City at 26USD per sq.m per month for the same type of space.
However, one should note that Royal City, which is included in non-CBDrents, does not have a ground floor and therefore its first level of twobasements was used as a comparison. In 2014 it is expected that due tolimited supply in the Ho Chi Minh City’s CBD, rents will remain firm,whereas in non-CBD areas supply will increase. Coupled with limited foottraffic, rents will drop further. 2013 saw a trend of developerscharging rents to tenants on a percentage of turnover, as opposed tofixed rents, in order to increase occupancy. This trend will remain in2014 as supply continues to outstrip demand and limited tenants remainin the market for expansion.
In 2013, food andbeverage (F&B) retailers have performed much better than specialityretailers, including fashion. This is evidenced by the number of newF&B retailers dominating the prime spaces in Ho Chi Minh City’sDistrict 1 and paying higher rents than the speciality retailers. It wasthe opposite five years ago. New entrants such as Starbucks, AuntyAnne’s and Baskin Robbins, have stirred up the F&B market and thelong-awaited new entrant McDonald’s is set to open in Ho Chi Minh Cityin 2014.
A noticeable trend in the Hanoi market isthat the same tenants are moving around. For example, in the thirdquarter of 2013, 519 stores opened and 220 closed. 64 percent of the newstore openings were F&B and fashion, while 36 percent of the storesthat closed were fashion. Very few F&B outlets closed. From thesefigures, we can understand that tenants are relocating from weaker tostronger malls, or malls where they have the best chance of success.Hanoi is a good example of where more space has been created, rentalshave dropped and tenants have been encouraged to expand.
With the change, or rather the drop in consumer confidence, consumerpriorities have altered. Entertainment and dining out are no longer theprime priorities of Vietnamese consumers. They are more likely to spendtheir disposable income on education and healthcare products. This willaffect the take-up of space in shopping centres in the short term, butin the long term, F&B, groceries and entertainment will dominateconsumer attention and take up the majority of space in the country’smalls.
In summary, foreign developers and retailershave confidence in the long-term growth of Vietnam, especially in its 90million, predominantly young population. A warming of governmentpolicy, especially the Economic Needs Test, will welcome retailers andinstill confidence in investors to tap the under-served retail markethere.
However, Vietnamese developers and retailerswill retain the competitive edge on account of their understanding ofthe local market, the speed with which they can get their products onthe market, and their access to the best real estate. But it’s not allabout quantity and speed, as the market develops and becomes morecompetitive, quality of design, tenant mix, marketing and managementwill play a much greater part.-VNA
Retail is often regarded as the most exciting of all the real estatesectors, and requires specialised knowledge from sales and marketing, tosite acquisition to management to ensure success.
Vietnam has thrived on the back of good news concerning an increase inthe supply of space, the prospect of new international retail tenantsand increasing numbers of consumers, although slower than in previousyears. Conversely, the sector has been plagued by reports of storesclosing, restrictive regulations for foreign retailers and low consumerconfidence. However, considering recent economic indicators generallypointing in the right direction, consumers are slowly regainingconfidence and starting to spend again.
Turnover inretail sales services has seen robust growth of around 23 percent overthe last 10 years. However, growth has slowed since 2008 as consumershave tightened their belts and tended to buy less, buy more frequentlyand buy where they can obtain more value for money. This in turn hasaffected retailers and slowed their growth plans and their ability topay prime rents.
Tourism has remained a bright spotfor Vietnam with 6.8 million international tourist arrivals in 2012.Although tourist revenues were approximately 5.6 billion USD in 2011 inHanoi and Ho Chi Minh City combined, this is still far short of Thailandwhich received 22 million international arrivals in 2012, with thosevisitors spending almost twice as much, showing that Vietnam still hassome way to go before catching up with its neighbour.
By the end of 2013, retail supply of formal trade centres in Hanoiwill stand at around one million square metres which is more than doubleHo Chi Minh City’s 450,000sqm. Hanoi will continue to enjoy more supplythrough to 2014 as more projects come on line, bringing the total to1.5 million sq.m by the end of next year, while Ho Chi Minh City is dueto have a little over 500,000 sq.m. As a result, rents and occupancywill remain firm in Ho Chi Minh City, while in Hanoi they are likely tocome under pressure, especially in non central business districts (CBD)locations.
Although Vietnam benefits from having twomajor cities with a combined population of approximately 13 million,Hanoi has shown the most activity this year with the introduction ofthree new shopping centres: Trang Tien Plaza, Vincom Royal City Megamalland Vincom’s Times City Megamall. At least 27 new brands entered theHanoi market by opening in these new shopping centres, compared to justsix new brands arriving in Ho Chi Minh City. This made Hanoi one of themost active retail real estate markets in Asia in 2013.
New developments in Hanoi in 2014 will include the opening of thefirst Lotte Mart at Mipec Tower in Tay Son street in Dong Da districtand the Lotte Department Store in Dao Tan street in Ba Dinh district. Inaddition, Viglacera’s Thang Long Number One will open with 11,000 sq.min mid-2014.
New supply in Ho Chi Minh City during2014 should see the opening of two new projects in District 2, the firstof which should be Thao Dien Pearl’s 20,000 sq.m of gross leasable area(GLA) and Cantavil Premier with 30,000sqm of GLA, to be anchored byParkson, Big C and Lotte Cinema. In addition two megamalls should openin 2014, both with hypermarkets as their anchor tenants, these being SCVivo City (72,000sqm GLA) hosting CoopXtra in District 7 and Aeon TanPhu Celedon Shopping Mall (75,500sqm GLA) which will be home to AeonHyper.
Many of these new shopping malls aredeveloped by brand names familiar to Vietnamese customers, such asVincom, SSG, Coopmart and Lotte, and will incorporate a hypermarket orat least a large supermarket into their tenant mix to drive traffic totheir suburban locations.
Average asking rents inprime ground floor locations in the Hanoi CBD are approximately 90 USDper sq.m per month, slightly lower than Ho Chi Minh City’s 95 USD persq.m per month. However, outside of the CBD, Hanoi rents are averaging38 USD per sq.m per month which is higher than Ho Chi Minh City at 26USD per sq.m per month for the same type of space.
However, one should note that Royal City, which is included in non-CBDrents, does not have a ground floor and therefore its first level of twobasements was used as a comparison. In 2014 it is expected that due tolimited supply in the Ho Chi Minh City’s CBD, rents will remain firm,whereas in non-CBD areas supply will increase. Coupled with limited foottraffic, rents will drop further. 2013 saw a trend of developerscharging rents to tenants on a percentage of turnover, as opposed tofixed rents, in order to increase occupancy. This trend will remain in2014 as supply continues to outstrip demand and limited tenants remainin the market for expansion.
In 2013, food andbeverage (F&B) retailers have performed much better than specialityretailers, including fashion. This is evidenced by the number of newF&B retailers dominating the prime spaces in Ho Chi Minh City’sDistrict 1 and paying higher rents than the speciality retailers. It wasthe opposite five years ago. New entrants such as Starbucks, AuntyAnne’s and Baskin Robbins, have stirred up the F&B market and thelong-awaited new entrant McDonald’s is set to open in Ho Chi Minh Cityin 2014.
A noticeable trend in the Hanoi market isthat the same tenants are moving around. For example, in the thirdquarter of 2013, 519 stores opened and 220 closed. 64 percent of the newstore openings were F&B and fashion, while 36 percent of the storesthat closed were fashion. Very few F&B outlets closed. From thesefigures, we can understand that tenants are relocating from weaker tostronger malls, or malls where they have the best chance of success.Hanoi is a good example of where more space has been created, rentalshave dropped and tenants have been encouraged to expand.
With the change, or rather the drop in consumer confidence, consumerpriorities have altered. Entertainment and dining out are no longer theprime priorities of Vietnamese consumers. They are more likely to spendtheir disposable income on education and healthcare products. This willaffect the take-up of space in shopping centres in the short term, butin the long term, F&B, groceries and entertainment will dominateconsumer attention and take up the majority of space in the country’smalls.
In summary, foreign developers and retailershave confidence in the long-term growth of Vietnam, especially in its 90million, predominantly young population. A warming of governmentpolicy, especially the Economic Needs Test, will welcome retailers andinstill confidence in investors to tap the under-served retail markethere.
However, Vietnamese developers and retailerswill retain the competitive edge on account of their understanding ofthe local market, the speed with which they can get their products onthe market, and their access to the best real estate. But it’s not allabout quantity and speed, as the market develops and becomes morecompetitive, quality of design, tenant mix, marketing and managementwill play a much greater part.-VNA
