Vietnam real estate alluring to foreign investors

Vietnam's real estate market is attractive to foreign investors, says Colliers Vietnam in its Q3 research report.

Vietnam's economy is demonstrating its impressive growth, with nine-month GDP reaching 8.83% year-on-year, the highest increase in the last decade. As the geo-political intense, inflation and energy shortage continue globally, the three pillars of investment, export and domestic consumption have made Vietnam resilient against headwinds, and thus contributed to the country’s growth.

In the real estate sector, despite ups and downs in segments, the market remains progressive and potential with large room for growth. Coming to the end of this year, we believe there will be more efforts from the government in terms of fiscal and legal policies to help the Vietnam real estate market move forward sustainably.

Although taking a more cautious approach amid volatility, foreign investors still see opportunities in Vietnam across all real estate segments. This is reflected in the amount of foreign direct investment (FDI) realized in Vietnam in the first nine months, reaching $15.4 billion, the highest in the last five years, of which real estate ranked second in terms of FDI attraction.

We have seen interest running high among investors almost from all jurisdictions. Industrial real estate tops the list and the world is very much in “catch-up” mode after the temporary stay of most investments in the past two years. All other segments, office, retail, residential and hospitality properties are at their most active since 2019.

Recent shackles in the country may put investor confidence on the wane for some foreseable months into 2023. However, these remedies are pretty necessary for a more transparent, fair and healthy market in the long run. Smart investors, therefore, will seek to seize rising opportunities to participate in this market.

Thriving industrial real estate

The HCMC industrial market flourished in Q3 with the occupancy rate stable at 91%. Standing at $200/sqm/term, the average rent in HCMC increased 6% quarter-on-quarter although no new supply was recorded. Looking ahead, the Binh Dong Industrial Park in Tien Giang province is expected to add more than 211.96 hectares to future market supply.

Meanwhile, neighboring areas of Hanoi continue to attract foreign tenants, with an increased focus on Bac Ninh for modern factories and Hai Phong for ready-built warehouses.

In the central region, Danang plans to develop more IPs and high-tech zones in the Northwest, as Hoa Ninh IP and Hoa Cam Phase II IP are calling for investment in Q4.

Development of infrastructure and logistics facilities have helped the processes of mass production and transportation easier and more convenient in Vietnam. As a result, we have seen inquiries from foreign investors seeking locations for rent in industrial zones increased sharply since Q2, and this trend is likely to continue until next year.

Steady growth in office market

Demand for Grade-A offices in HCMC continued its upward trend with the occupancy rate recorded at nearly 95%. Due to limited land funds in the central business district (CBD), projects located in HCMC’s southern and Thu Thiem areas are drawing more interest from tenants who look for high-quality spaces at more affordable rents.

In the Hanoi office market, an additional of 20,000 square meters from Grade-A Epic Tower in Cau Giay district was recorded in Q3. Occupancy rates of both Grade-A and Grade-B offices reached 87% and 95%, respectively. Most fully occupied projects are located in Hoan Kiem and Ba Dinh districts.

Danang, although no new supplies were recorded for months, will have two large-scale projects namely The One and Viettel Building in the coming years.

The demand for office spaces grows constantly since March and thus contributing to the rapid recovery of the office segment in three major markets in Vietnam. Notably, high flexibility and global interactivity has led to a change in office arrangement, with co-working space is most preferred by SMEs or startups in large cities while activity-based working model is considered by multinational companies.”

Giants heating up retail market

Q3 recorded a wave of capital spending on retail real estate as both developers and brands wanted to unlock the great potential of Vietnam's property market. In the two major markets of HCMC and Hanoi, average asking rents ranged from $110 to $140/sqm/term with low vacancy rates in the CBD estimated at 1-2% in HCMC and 3-5% in Hanoi. In Danang, rental prices remained stable, giving opportunities for retailers to re-enter the market.

Vietnam’s retail market is heated as key international players with years of experience in the country seek to expand in the coming years while home-grown brands are also beefing up their market share. A new Thiso Mall, to be launched in Q4, will bring more than 34,620 square meters of of net leasable areas to HCMC.

Meanwhile, the Hanoi market will receive a total of 312,500 square meters including commercial centers and retail podiums by 2024.

Growth momentum regained in serviced apartments

A rise in demand for accommodation has led to positive performance of the serviced apartment market in Q3 with average asking rents recorded higher in HCMC and balance in Hanoi quarter-on-quarter. Occupancy rates hiked in both Grade A and B in HCMC and Grade-B in Hanoi, indicating strong recovery in accordance with the influx of expats and tourists.

More specifically, HCMC witnessed limited supply for serviced apartments with Grade-A rents ranging from $1,500 to 8,125 per month and Grade-B rents from $1,000 to 5,100 per month, depending on location. Although no new supply was recorded this quarter, future supply for HCMC’s serviced apartments are forecast to have more than 26,000 units by 2024.

In Hanoi, the central area accounted for 60% of total supply with rental prices estimated at $1,300 to 7,500 per month for Grade-A and $600 to 4,350 per month for Grade-B. Yet, as a result of tighter budgeting, occupancy rates for Grade-B serviced apartments increased by 10% while decreasing slightly in Grade-A.

Considering the growing number of expats and industry experts coming to Vietnam with different demands on accommodation (locations, quality, lease terms, etc.), prospects for long-term growth of serviced apartments in Vietnam loom large. Notably, an increasing supply of quality rental apartments has raised a competition against the limited supply of serviced apartments.

Dull condominium market, improved landed properties

Across the country, activities in the condominium segment slowed in Q3 in both the primary and secondary markets.

The HCMC market recorded supplies at the end of this quarter from the next phases of previous projects and two new projects in the south, categorized at high-end segment and above. Due to increasingly good connectivity, satellite areas of HCMC and neighboring provinces are attracting more homebuyers and investors.

In Hanoi, primary prices of apartments increased by 15% quarter-on-quarter with the fastest growth in Tay Ho, Tu Liem and Hoang Mai districts. This can be explained by higher land prices as well as more developed infrastructure in the capital.

Although no new supply was recorded this quarter, the Danang market is expected to set a new ceiling price as two luxury condominium projects are launched in Q4/2022.

In terms of landed properties, transactions in the HCMC market went up from the second half of Q3, with prices estimated to grow 10-15% quarter-on-quarter. New supplies of townhouses and villas appeared, contributing to the total forecasted 2,100 new units in 2022.

Meanwhile, Hanoi was quieter as no new supply was recorded. The selling price of landed properties ranged from $3,800 to $4,000 per square meter in satellite regions and $7,000 per square meter in Hanoi.

As the economic hub of Vietnam, the Ho Chi Minh City market remains fully potential for condominium and landed property in the long run. However, amid macro challenges such as credit tightening and rising interest rates, supply and demand in both segments may fluctuate in the coming time. For Ha Noi, the increasingly developing infrastructure continues to attract more buyers either for housing needs or investment, despite growing prices can be foreseen.