Vietnam’s ailing real estate market still offers opportunities for investors to tap, said Alex Crane, Knight Frank Vietnam's managing director.
Crane highlighted this at a recent business briefing held by the Canadian Chamber of Commerce, in which the property services firm presented its predictions for the property market in 2023.
"At present, if an investor is liquid and able, it is a good time to be making moves in the commercial property industry. Both local and foreign investors are in the market and looking for opportunities right now," he told the event.
With a tumultuous 2022 in the rear-view mirror, following high-profile issues that suspended major projects, and in some cases, led even to prosecutions, all eyes are on the property sector for this year.
Despite woes in the Vietnamese real estate market and global economic headwinds, Crane said he saw opportunities from property developers’ shake-up that has followed the turbulence of 2022.
"Last year certainly saw quite a lot of reputational damage incurred to local property developers, but we already saw 'bubbles of activity' early this year.” He remained optimistic about Vietnam's overall industrial property sector, but did caution that the 30% increase in construction costs means it is "getting expensive".
He noted that Vietnam is now essentially on par with the Philippines in terms of the cost base for the manufacturing sector when including labor, which is one of the key backbones of Vietnam's overall economy.
The Knight Frank executive added the domestic realty market could expect an increase in supply, which will put pressure on land prices and rents in the year ahead. New supply would arrive from new developments but also with the reopening of 'gray space' being those factories that have capacity following either closures or reduction of output or hours through last year. These will likely be the first to come back online in certain industries before new leases are taken in new projects.
Citing a Knight Frank report from late in 2022, he mentioned a huge opportunity for tenants this year. Describing a shift from "owner favorable" to "occupier favorable", Crane recommended that enterprises in offices and warehouses should speak with brokers about future terms and future rates, with a 23% increase in Grade A and B office inventory set to hit the market in the next 12-24 months - set to bring average Grade A rental rates down by around 5%, and Grade B rates down by around 18%.
"For both industrial and office occupiers, 2023 will be an excellent time to speak to your advisors," said Crane. "For manufacturers looking at new facilities are heading into the buyer's market; and for multinationals and large organizations, the office market here is also beginning swing favorably for them."
Knight Frank welcomed further regulatory intervention from Vietnamese regulators in areas covering taxation, asset liquidation, lending policies, and bond markets to prevent future recurrences of several of the issues that arose in the second half of last year or so.
"Much has been discussed of late around the bond market, and there is certainly potential for major legislation around the liquidation of distressed assets that could go some way toward alleviating the pressure on bonds this year. The government could also look to more stringent regulation around borrowing and repayment for developers," Crane said.
He praised Vietnam’s plans for a second property tax, which he described as a "net positive all round" for the property sector.
He concluded by highlighting this year as an opportunity for a broad improvement in across-the-board standards for the commercial property sector, remarking that "quality is king" and talking about ways in which this year will be defined by a higher quality of development, higher standards of governance, and a continued increase in the focus on sustainability and green-accreditation for the new inventory that is coming on line both this year and 2024.