Vietnam sees steady performance across commercial real estate segments: Avison Young

Sales of commercial property were largely stable in Q2, while the housing segment awaits new growth drivers when the new laws on real estate come into effect in August, wrote analysts from consultancy firm Avison Young Vietnam.

Its Q2/2024 report released on Thursday showed that in the year to end-Q2, Vietnam’s real estate market had recorded $1 billion in disbursed capital from foreign investors, almost doubling year-on-year. Revenue in the real estate sector in Ho Chi Minh City grew by 6.1% over the same period.

"The market has seen significant improvements. New housing supply has rebounded, supported by efforts to stimulate demand. Meanwhile, the office and industrial real estate segments remain attractive, driven by solid fundamentals and high rental demand," said David Jackson, principal and CEO of Avison Young Vietnam.

"All eyes are now on August 1 – when new laws on real estate come into effect. This marks a remarkable milestone for Vietnam's legal system in the past decade, opening a new development cycle in the real estate market. Real estate investment activities, including collaborations and M&A transactions will become more active from the end of 2024," he added.

The performance of Hanoi's office real estate market mirrors that of HCMC a year ago: a surge in new Grade A office supply intensifying competition and restraining rental increases. In Q2, three new Grade A buildings – VinaComin Tower, Taisei Square, and Grand Terra 36 Cat Linh – added 80,400 sqm to the market.

Consequently, several buildings proactively reduced rents to retain tenants and compete with lower rates from new projects, resulting in a 3% decline in average Grade A rents. The Grade A occupancy rate also fell by 5% to 84% due to surplus supply. In contrast, Grade B offices performed stably, with rents and occupancy rates rising 1% and 2%, respectively.

In HCMC, large leasing transactions in Q2/2024 mainly occurred in new Grade A projects, demonstrating the high demand for modern, premium and sustainability-certified offices. In the CBD areas, both Grade A and B offices maintained stable rents, reflecting the heated competition between existing buildings and new developments, as well as among new projects, to attract tenants and boost occupancy rates.

Q2/2024 saw the introduction of 36,798 sqm of new Grade A office space from the e.town 6 in Tan Binh district, with an asking rent of $27 per square meter per month. This is expected to be the second LEED Platinum-certified office building in HCMC.

In the next quarter, ThaiSquare The Merit will come into operation, and within the next one to three years, the office market in HCMC will have new supply from Marina Central Tower, UOA Tower 2, and Saigon Center Tower 3.

Nhung Vu, director of office services at Avison Young Vietnam, commented: "The entry of e.town 6, aiming for LEED Platinum certification, or Marina Central Tower (Q2/2025) targeting LEED Gold, reflects competition towards ‘going green’ in the HCMC office market, not only in the increasing number of projects but also in their geographical expansion.

"Given the limited land banks in central areas, high-end office projects that are both green-certified and transit-oriented (TOD) will be more appealing to high-profile tenants. These projects will elevate the development of Ho Chi Minh City's office market, strengthening its position as a dynamic and attractive business destination for large domestic and international companies."

Positive growth in industrial real estate nationwide

In Q2/2024, the industrial real estate markets in HCMC, Danang, and Hanoi showed stability in rents, occupancy rates, and new supply. Key developments during the quarter focused on investment activities and the implementation of FDI projects within industrial parks (IPs).

In Hanoi, industrial rental prices and occupancy rates remained unchanged quarter-on-quarter, at $214/sqm/term and 86%, respectively. Due to high rents and low vacancy in Hanoi, and completed interprovincial infrastructure, neighboring provinces such as Bac Ninh, Bac Giang, Hung Yen, and Vinh Phuc saw quarterly rent growth from 5% to 7%, depending on the location.

In Q2, Bac Ninh maintained its position as a northern industrial hub, highlighted by big projects such the as 14.26-ha, $383 million circuit board plant of Foxconn group in Nam Son-Hap Linh IP, and a semiconductor equipment and materials factory of Amkor in Yen Phong II-C IP, with an additional investment of $1.07 billion.

Construction commenced on the 600-ha VSIP Lang Son IP and the 190-ha VSIP Ha Tinh IP. Hanoi approved investment policies for Dong Anh IP and Phung Hiep IP spanning nearly 475 ha in the last quarter.

For years without new supply, the industrial real estate market in HCMC has reached its peak in average rents at $230/sqm/term and average occupancy rates at 90%. The city is actively resolving legal obstacles for projects in Thu Duc city, Cu Chi and Binh Chanh districts to address land shortages, while striving to renew its industrial land banks. These efforts are aimed at attracting investments, particularly in the technology sector, to raise the production value per square meter of land.

In early May, Korean corporation Hyosung announced plans to invest in a large-scale data center in Ho Chi Minh City Hi-Tech Park. During the second quarter, Korean and Singaporean corporations including LG, Lotte, Hyosung, and CapitaLand announced upcoming investments in manufacturing facilities in Vietnam.

In the first half of 2024, a total of 10 new IP projects were approved, comprising 2,804 ha, indicating abundant supply in the long term.

Chi Vu, senior manager of industrial services at Avison Young Vietnam commented: "Competition in industrial real estate segment is getting intense between the secondary markets and the primary markets.

"The advantages of secondary markets include ample industrial land for lease, moderate occupancy, and reasonable rents. Secondly, there's a move toward energy-efficient and environmental-friendly IPs to attract FDI in high-tech sectors. The Vietnam Fund for Investment Support draft underscores efforts to enhance investment policies, boosting competition and attractiveness, and fostering Vietnam's industrial real estate growth in the long term."

Hanoi condominium supply rises sharply, followed by HCMC

Hanoi's condominium market witnessed new launches in the second quarter, including Capital Elite, The Sola Park, Lumi Hanoi, and Imperia Sky Park. The average absorption rate reached 70-80%. Average primary selling prices rose by 7-10% at projects in the west of the city, faster than the 2-3% increase of those in the east.

Therefore, demand and investment potential are concentrated in this area. Looking forward, with large land banks and developed infrastructure, many large-scale urban projects will be developed in the western part of Hanoi, namely Vinhomes Smart City and Vinhomes Green Bay. Vingroup also recently announced an investment in a 268-ha smart urban area in Dong Anh district, Hanoi.

Leveraging the recovery momentum from Q1, the HCMC condominium market witnessed the launch of Eaton Park, priced between $5,000 and $5,400/sqm. General selling prices increased across different segments and regions. Primary selling prices increased by 5%, with high-end segments recording faster growth of 7%.

Real estate prices in Thu Duc city – home to many high-end projects, are 10% higher than the average in HCMC. More new supply is expected by year-end, including projects such as Empire City, The Metropole, and The Opus One. Moreover, neighboring provinces such as Long An and Binh Duong are also projected to see vibrant developments from Vinhomes, An Gia, and the Covestcons-BEHS joint venture.

New real estate laws that take effect from August 1, 2024 are expected to boost the market, resolving longstanding legal bottlenecks and revitalizing stalled projects. However, it is unlikely affordable housing and social housing supply will increase in the next few quarters due to limited land banks and increasing investment and construction costs.

Retail rents in non-CBD markets show variability

In Q2, rental prices for retail spaces in non-CBD of HCMC decreased by 4% quarter-on-quarter, ranging from $20-117/m2/month, due to competition from the 48,000 sqm new entry of Vincom Mega Mall Grand Park (Thu Duc city).

In contrast, rents in non-CBD Hanoi witnessed an increase of up to 15%, between $20 and $88/sqm/month, driven by rapid development in suburban areas. Despite the fluctuating rents at different locations, non-CBD occupancy rates in both markets saw a slight increase and decrease of 1% in HCMC and Hanoi, respectively.

For retail spaces in the CBD, rents and occupancy rates in HCMC remained unchanged. Meanwhile, rents in CBD Hanoi grew by 3% quarter-on-quarter. In terms of property type, rents at retail podiums (in apartment buildings and office towers) saw the highest increase at 15%, followed by shopping centers at 12%. This trend reflects brands' preference for renting these locations due to favorable conditions such as footfall, operational efficiency, and diverse spaces to try new business models.

The supply of retail real estate market in Vietnam is expected to be more abundant and diverse from the end of 2024. In HCMC, two new shopping malls, namely Central Premium Mall and Parc Mall (District 8), are set to launch by year-end.

The Hanoi market is projected to have an additional 12,000 sqm ofretail space from Aeon projects in Cau Giay district by year-end, along with the Aeon Hoang Mai, Green Diamond Lang Ha, and Grand Terra 36 Cat Linh projects within the next two years.