FDI inflows boost Vietnam’s serviced apartment segment: experts

Vietnam’s serviced apartment segment has performed well this year in Hanoi and Ho Chi Minh City, thanks partly to foreign direct investment (FDI) inflows accompanied by foreign experts, according to real estate agency Savills Vietnam.

According to the General Statistics Office, total FDI registered in Vietnam, including newly registered capital, added capital and capital contributions/share purchases, reached nearly $15.19 billion in H1/2024, up 13.1% year-on-year.

Among 57 countries and territories with newly licensed investment projects in Vietnam, Singapore was the largest investor with $4.01 billion, accounting for 42.1% of the total. Hong Kong came second with $1.18 billion, making up 12.4%, followed by mainland China with $1.01 billion and 10.6%; Japan with $979 million and 10.3%; Turkey with $730.1 million and 7.7%; and Taiwan with $529.8 million and 5.6%.

FDI flowed mainly into provinces and cities like Bac Ninh, Ba Ria-Vung Tau, Quang Ninh, Hanoi, Hai Phong, Ho Chi Minh City, and Dong Nai.

These localities have good infrastructure and stable human resource supply, have been reforming administrative procedures and actively engaged in investment promotion, creating favorable conditions for foreign investors.

A Savills Vietnam report says that the increase in FDI inflow has promoted the development of serviced apartments in the country, especially in Hanoi and HCMC.

In Hanoi, serviced apartment supply reached 6,096 units in Q2/2024, up 0.3% over the first quarter. The segment’s occupancy rate hit 83%, up 1 percentage point quarter-on-quarter and year-on-year. Average monthly rentals reached VND601,000 ($23.65) per square meter, up 4% quarter-on-quarter and 5% year-on-year.

The capital city attracted FDI of more than $1.1 billion in H1/2024, up 52% year-on-year. The inflow included 120 new projects. This growth has seen a higher number of foreign experts coming to Vietnam, boosting demand for the serviced apartment market, the Savills Vietnam report says.

Hanoi has striven to accelerate implementation of key transport infrastructure projects this year, including the Thuong Cat and Van Phuc bridges across the Red River, the eastern feeder road for the Phap Van-Cau Gie Expressway and a road connecting My Dinh ward with Ba Sao township in Ha Nam province and Bai Dinh Pagoda in Ninh Binh province.

The report says two-bedroom serviced apartments are most popular among tenants in the capital city, accounting for 58% and 53% of total demand in downtown and other areas, respectively. Meanwhile, a majority of tenants in the western Hanoi area want small apartments like studios and one-bedroom apartments.

In the near future, Hanoi will see almost 6,000 serviced apartments from 17 future projects.

PARKROYAL Serviced Suites Hanoi and Epic Tower are expected to come into operation in 2024 with 227 units. Epic Tower is the only future supply recorded in Cau Giay district. Fusion Suites is expected to provide the market with 193 units in 2025. The Tay Ho View Complex is expected to add the largest supply of Grade A apartments next year.

The report notes that international operators like Swiss-Belhotel International (Epic Tower project) will account for 55% of future supply.

Matthew Powell, director of Savills Hanoi, said abundant FDI capital and improved infrastructure development have continued to strengthen demand for serviced apartments in the capital city, as travel time to neighboring provinces is shortened.

Limited future supply

Meanwhile, in the southern economic hub of HCMC, Q2 supply of serviced apartments reached 8,514 units, up 21% year-on-year. Cherry Hotel & Apartments reopened 43 renovated apartments after temporarily closing 77 apartments in three Grade C projects for repairs.

The report sees limited serviced apartment supply for HCMC in the near future. In 2025, five projects are expected to join the market with about 500 units from three Grade B and C project, 63% of them located in District 1.

Q2 occupancy reached 79%, down 1 percentage point quarter-on-quarter and 4 percentage points year-on-year, with low short-term stay demand in the low season. As many as 175 apartments saw no tenants in the second quarter.

Monthly rentals averaged VND512,000 ($20.15) per square meter, up 1% quarter-on-quarter but down 1% year-on-year. Rentals in 14 Grade A and B projects increased by an average of 3% quarter-on-quarter because they had been fixed a year earlier and investors had stopped promotions. Nine of these projects, accounting for 74% of total supply, have a relatively high occupancy of 80% or more.

Main tenants of the serviced apartment segment are foreign experts working in industrial parks and businesses in Ho Chi Minh City and the provinces of Long An, Dong Nai and Binh Duong. To optimize capacity, several projects offer a combination of long-term and short-term leases.

High demand for affordable accommodation has seen studio and 1-bedroom apartments as the most preferred option.

The main tenants of the serviced apartment segment are foreign experts working in industrial parks and businesses in HCMC, Long An, Dong Nai, and Binh Duong. To optimize capacity, projects combine long-term and short-term rents.

With high demand for affordable accommodations, studios and one-bedroom apartments are favored.

In the past five years, the HCMC market has received 1,849 apartments from 48 new Grade B and C projects. Developers have focused on developing studios and one-bedroom apartments, making up 85% of the new supply.

Cao Thi Thanh Huong, senior manager of the research department at Savills Ho Chi Minh City, echoes the report’s main observation that demand for serviced apartments has been driven by FDI inflows, adding that this has shown signs of slowing down in the southern economic hub.

Therefore, she sees this segment facing “many challenges in the future.”

Demand for long-term stays will remain stable, but serviced apartment growth may face difficulties amid fierce competition, which has seen more than 40,000 apartments put for rent in the last three years.

According to the municipal Statistics Office, HCMC attracted $1.1 billion in FDI in the first half of 2024, down 19% year-on-year. Of this, newly registered FDI was $192 million from 597 new projects.