Q1 real estate landscape in northern Vietnam

The residential market in northern Vietnam remained in distress in the first quarter, while demand for industrial real estate was sustained thanks to the China+1 strategy of manufacturers, says Cushman & Wakefields.

Residential market

Developers were hesitant to open new projects for sale due to the detrimental impacts of credit control on the real estate sector and customer concerns as regards the legal issues of the current real estate market as well as the risk of the global economic crisis.

Therefore, Q1/2023 continued to witness stagnation in Hanoi’s new supply with over 2,000 units launched, down 4% quarter-on-quarter and 11% year-on-year. In which, all projects launched in the quarter came from the next phase of existing projects. Additionally, Gia Lam and Nam Tu Liem districts dominated the supply.

In Q1, Hanoi’s new sales volume fell to approximately 1,400 units, decreasing by nearly 34% quarter-on-quarter and 39% year-on-year. This was attributed to customers raising concern regarding the liquidity of the real estate market caused by the credit control policy, legal issues, licensing issues and the gloomy global economic context of 2023.

Therefore, the market's primary focus will now be on end customers and long-term investors. However, there were some projects recording better performance thanks to their marketing strategies, standard construction progress, clear legal status and diverse amenities.

The average price of Hanoi apartments increased slightly to $ 1,911 per sqm, up 3% quarter-on-quarter and 14% year-on-year since mid-end and high-end units made up most of the current product mix, while affordable units witnessed a scarcity in supply. Projects seeing rising prices mainly came from Long Bien district.

For landed property, no new supply entered the market in Q1, even from existing and newly launched supply. The quarter continued to witness a drop in Hanoi landed sales volume with 35 units sold, decreasing by 51% quarter-on-quarter and 92% year-on-year.

This indicated that both developers and buyers were hesitant to make transactions due to the negative impacts of credit limitation, legal and bond issues of real estate corporations, and the risk of global economic crisis in 2023. Therefore, most of Hanoi's landed projects were locked so that developers can wait for better sentiments in the real estate market. End-users and long-term investors will now be the market’s main focus.

Hanoi’s landed properties’ average price witnessed a slight decrease in Q1 to $7,471 per sq.m, down 3% quarter-on-quarter and nearly unchanged in comparison with the same period last year. The average price of most existing projects in this quarter reached a plateau and the slight drop was attributed to high-end projects being locked.

Office market

In Q1/2023, Lancaster Luminaire in Dong Da district joined the market, contributing new Grade A supply to Hanoi’s office space for lease market. Net absorption in the quarter was recorded at nearly 18,600 sqm mainly thanks to reputable tenants, especially at high-quality buildings in non-CBD areas that still have high availability.

In Q1, the gloomy economic context and new regulation on fire prevention and fighting (Circular No. 6/2022/TT-BXD) have somewhat hindered leasing activities in the market. Generally low tenant sentiment was observed, especially in the Grade B submarket, as tenants were inclined to stay at their current premises or even downsize and downgrade in order to save costs.

However, despite the disadvantageous context, the Grade A submarket remained relatively stable with small growth in both occupancy (+2.0 ppts) and asking rent (+1.3%) compared to the last quarter. This signifies the resilience of high-quality office supply amid economic instability so far.

In 2023, multiple projects are expected to enter opertation: BRG Diamond Park plaza (Grade A; 31,205 sqm, Secondary); Lotte Mall Hanoi (Grade A, Secondary, 20,500 sqm); Vinacomin Tower (Grade B, West, 72,000 sqm, not yet finalized the total space available for lease); and Intracom Riverside (Grade B, Suburban, 24,000 sqm). Most projects are expected to enter operation in Q2 and Q3 this year.

Into 2024, three out of four projects are of smaller scale, ranging from 13,000 sqm - 22,500 sqm in office NLA, except for Shilla Hotel (Secondary, grade A) with more than 47,000 sqm of expectant office space.

Currently, only three projects are expected in 2025-2026: Landmark 55, Grandeur Palace, and Sunshine Empire, contributing about 144,000 sqm expectant office space. All of these projects are in the West submarket.

Retail market

For the retail sector, Q1/2023 welcomes the completion of the retail podium at Lancaster Luminaire in Dong Da district, adding more than 6,600 sqm of new retail space to the Hanoi retail market. The trend to renovate, redesign, and upgrade the tenant mix is still ongoing across the city.

Overall, total supply was recorded at 1.29 million sqm, 88% of which came from shopping centers. The majority of retail space was distributed in non-CBD areas, with secondary and suburban areas accounting for more than 75% of the total thanks to the high concentration of shopping center areas in these submarkets. On the other hand, retail podiums are more highly distributed in the West (46% of total retail podiums) and secondary area (44%).

Overall rent of the whole Hanoi market is gradually recovering at around 3.6% quarter-on-quarter, partly because of the annual rent adjustment at various projects, the ongoing renovation and upgrading trend, as well as expansion of large retailers.

Overall occupancy has dropped slightly, mainly driven by new retail podiums in recent quarters being slow to fill up, along with the renovation and tenancy mix redesign at some projects. Additionally, a few malls were heavily impacted during the pandemic pause and has not yet recovered, gradually losing customers to nearby, better-managed shopping centers.

MUJI is opening its third store in Hanoi (sixth in Vietnam) at Aeon Mall Ha Dong, shortly after the fifth store at Vincom Mega Mall Thao Dien in March 2023. Two new Decathlon stores are planned for Hanoi this summer, at Vincom Mega Mall Times City and Savico Megamall Long Bien. A new Buy2Sell showroom opened at Vincom Mega Mall Times City, with a total 100 new showrooms planned across southeast Asia by 2030.

The “Industrial Revolution 4.0 and Opportunities for Vietnam retail market” conference in early April identified four dimensions in which digitization impacts the retail landscape:

More power to the consumer: Buy and customize everything, everywhere, anytime

The rise of experiential retail: Beyond mere buy-and-sell, the competition for customers now includes a new domain - experiences. Retailers have to innovate constantly to enhance customer experience.

The problem of cost efficiency: While new technology is costly to implement at first, it cuts down labor costs and operational risks in the long-term.

Growing impacts of demographics and social and cultural values: With technology, globalization and increased awareness of social-cultural-environmental values have become substantial drivers for consumer trends.

Industrial real estate

In Q1/2023, the northern region's industrial market welcomed a new supply of about 116 hectares from Tam Duong I IP - Section 2 in Vinh Phuc province. There was no new supply of ready-built-factory (RBF) and ready-built-warehouse (RBW) in the Northern Key Economic Region this quarter.

Thanks to its advantageous location and improved infrastructure and connectivity, the Northern Key Economic Region continued to receive investment, especially from the electronic and automotive industry (notable investor names include Goertek, Autoliv, Xiamen Sunrise Group, etc.). This has led the occupancy slightly up 1 percentage point quarter-on-quarter, equivalent to the absorption of 81 hectares.

Similar to the IP land market, the occupancy of ready-built-factory was increasing slightly by 1 percentage point quarter-on-quarter as demand from supporting vendors in the electronic industry and other manufacturing SMEs was sustained. The ready-built-warehouse market observed occupancy slightly down 1 percentage point quarter-on-quarter due to low season, and partly to negative global economic prospects.

The primary asking rent of IP land was recorded at $115/sqm/lease term, up 2.9% quarter-on-quarter and 5.5% year-on-year thanks to high demand towards this sector. The rent of ready-built-factory increased slightly by 1.9% quarter-on-quarter due to the readjustment of some projects, recorded at $ 4.7/sqm/month. Meanwhile, the rent of ready-built-warehouse remained stable during this quarter, at $ 4.5/sqm/month.

Currently, many IP developers are pushing up their construction progress to hand over land to clients. Therefore, the remainder of 2023 might see a supply of 670 hectares of IP land to the market.

The future supply of ready-built-factory and ready-built-warehouse remains abundant in the 2023-2025 period, with 1.2 million sqm of ready-built-factory and 700.000 sqm of ready-built-warehouse coming to the market. Demand for industrial properties will still be sustained thanks to the China+1 strategy of manufacturers, but a slowdown might be expected.

The rent of ready-built properties may keep on increasing but at a moderate pace. Meanwhile, industrial land prices will continue to increase.