Foreign brands ‘hunt’ retail premises in HCMC: Savills

Big retail companies are bringing new global brands to Vietnam after delays due to Covid-19, driving demand for premises and market rebound in Ho Chi Minh City, according to Savills.

A report for Q4/2021 of the property services company shows that in HCMC, given the reopening of the economy and commercial activities, retail premise landlords no longer offer support policies like discounts on rent or discounts of up to 50% in the first month of rent. Monthly gross rent in the last quarter of 2021 averaged VND1.15 million ($50) per square meter.

However, some landlords in non-CBD (central business district) areas, particularly in suburban areas, continue to apply several stimulus programs, including extending construction times and not charging rent or service fees during construction.

According to Savills’ report published in February 2022 on Pacific Asia Retail Property, given the severity of infection rates, the varied success of vaccination programs and diverse containment strategies, recovery rates have been far from consistent across the region.

The leading group includes mostly Chinese and Vietnamese cities, where business activity levels have remained robust with periodic disruptions. Cities like Beijing, Shanghai, Guangzhou, Hanoi and HCMC have seen modest growth in rent over the past two years. The figure for the three Chinese cities are 3.4%-13.1%, while it is 4.3% for Hanoi and 0.4% for HCMC.

In contrast, major markets like Singapore, Hong Kong, Seoul and Tokyo continued to decline sharply in the second half of 2021, with a decrease of 16% to 28%.

In HCMC, famous local and international retail names like Uniqlo, Muji, The Gioi Di Dong and Con Cung have continuously established new, large scale sales points of up to thousands of square meters.

Despite being in an industry heavily affected by Covid-19 for more than two years, the focus of retail brands on expansion and investing in shopping experiences demonstrates the importance of physical stores.

Tran Pham Phuong Quyen, Manager of Retail Leasing at Savills HCMC, said Vietnam’s domestic consumption is gradually becoming more stable and potentially bringing great revenue to retail sectors like health care, mother and baby care, sports fashion and food. This has encouraged businesses to open more branches and expand space for customer experience in many HCMC districts.

Large retail companies have been quietly bringing new international brands in fashion, leisure, accessories, outdoor sportswear and others to Vietnam. “This will potentially restore the market’s vibrancy in 2022.”

“Many international brands in the cosmetics, accessories, and supermarket sectors have expressed interest in Vietnam since 2019, but their business plans have been delayed due to Covid-19. They are relaunching their debut plans after international flights resumed in the country in 2022.”

When new businesses enter the market, they often have high expectations for initial premises in terms of location, facade, size, display capacity and brand identity. However, due to their numerous advantages in size, developer reputation and stable number of loyal clients, premises in the CBD or large shopping centers are limited, according to Quyen.

“Business owners will choose the appropriate space based on the type of business. For example, hot pot or barbecue restaurants, or fashion stores will maintain a large-scale store area to provide enough tables and rotation for one day, or just enough to exhibit items. While multi-brand stores with an area of 350-1,000 square meters are expected to continue enlarging to offer an integrated destination for customers.”

The large-scale retail model offers the benefits of customer experience, but comes with numerous burdens on rent, store investment expenditure, and capital for sourcing goods.

Therefore, before deciding where to open a store, businesses must thoroughly research market data and consumption potential. Simultaneously, they need a clear plan as to how many chain locations are enough to share the greatest amount of customers without being overwhelmed by each other’s sales, Quyen added.