Housing Availability Increases as Prices Rise: Avison Young

Avison Young Vietnam analysts provide a thorough overview of the dynamic shifts within the Vietnamese real estate market in the third quarter of 2024, illustrating a landscape that remains remarkably optimistic across various segments.

In the initial three quarters of 2024, foreign direct investment (FDI) flowing into Vietnam’s real estate sector surged to nearly $4.4 billion, marking a remarkable 2.2-fold increase compared to the previous year.

Foreign investors are eagerly pursuing a variety of opportunities, engaging in capital partnerships with local developers and partaking in project share acquisitions and mergers & acquisitions (M&A). This push is accelerating the market’s recovery phases, setting the stage for a new growth cycle anticipated to commence midway through next year. The influx of new players is poised to transform project development processes, leading to a more diversified supply in the near future.

“The Asia-Pacific region continues to serve as a pivotal growth engine and a secure investment hub globally. Investors are particularly interested in sectors like industrial & logistics, residential, office, hotel & resort, and retail. Thus, Vietnam’s real estate market stands to gain immensely from the ongoing FDI influx,” remarked David Jackson, Principal and CEO, Avison Young Vietnam.

He further emphasized that significant changes such as the ratification of three new real estate laws and the establishment of a new framework for land pricing, along with corrective measures addressing fraud cases, are instrumental in bolstering investor confidence.

Improving Condominium Supply, Rising Prices

The condominium market witnessed a rejuvenation in activity during Q3. New supply in both Hanoi and Ho Chi Minh City (HCMC) saw an upswing, indicative of developers’ adaptability to unmet housing demands and a revitalized market outlook.

After a mid-year tally of around 2,500 units, Hanoi’s market welcomed additional launches in Q3, including 1,424 units from Lumi Hanoi (Phase 2) and The Miami GS5. Several previously stalled projects, like QMS Top Tower and Hanoi Signature, made a comeback with 730 units. Average selling prices ranged widely, from $2,500-3,500/sqm, with premium locations touching $2,900-3,800/sqm.

Looking ahead, new condominium supply is expected to maintain a steady increase as the year wraps up, with anticipated launches like Lumi Hanoi (Phase 3), The Victoria, and The Senique Hanoi, alongside a projected price growth of 2-4%.

In HCMC, project rollouts such as D-Homme, Fiato Uptown, Lavida Plus, and Eaton Park (Phase 2) are set to bring new units, while Opus One, located in the Vinhomes Grand Park urban area, will introduce 2,000 fresh units to the market.

The primary pricing spectrum in HCMC ranges from $3,000-5,000/sqm, with 3,000 units from the mentioned projects expected to hit the market in Q4. Prices start at $2,250/sqm for Fiato Uptown, climbing to $2,700/sqm for D-Homme, while The Opus One commands $3,300/sqm.

Even with the current pricing trends, housing affordability poses challenges for homebuyers in both Hanoi and HCMC. Buyers are becoming increasingly discerning, especially regarding the legal status of projects, resulting in varied absorption rates: 80-85% in Hanoi versus 70-75% in HCMC.

Rising prices are steering demand toward smaller markets, particularly suburbs and satellite cities with enhanced transportation links and reasonable pricing structures. For instance, Binh Duong saw heightened activity in Q3 with projects like TT Avio, Sycamore, and BenHill Thuan An thriving.

Hanoi’s eastern regions, including Dong Anh and Gia Lam, and HCMC’s neighboring provinces like Binh Duong, Dong Nai, and Long An, are tipped to lead future housing supply.

Stability in the Office Sector, Expanding Supply Beyond CBD

The office sector has manifested stability throughout the year thus far, with rental and occupancy rates showing little change in Q3. An uptick in new supply is expected over the next two years, primarily in non-central business districts (non-CBD).

In Q3, HCMC launched a new Grade A building, ThaiSquare The Merit, boasting 11,000 sqm of leasable space. Additionally, e.town 6 in Tan Binh district has achieved LEED Platinum v4 Core & Shell certification.

Office rentals held steady with Grade A spaces at $55/sqm/month and Grade B at $26/sqm/month. Future office spaces are projected to concentrate in Thu Duc city (Vinhomes Grand Park) and District 7 (UOA Tower 2, V-Plaza Towers), both offering competitive rents relative to the CBD.

Recent news highlights Google’s decision to establish an office in HCMC, paving the way for other firms in technology, finance, and energy to bolster their presence in this burgeoning economic hub.

Conversely, Hanoi did not see new office supply in Q3, with stable rents and occupancy rates for Grade A and B properties. Hoan Kiem and Ba Dinh districts continue to lead in rental prices, ranging from $32-41/sqm/month.

Notably, western districts like Cau Giay, Nam Tu Liem, and Bac Tu Liem are experiencing rapid development with new projects. Recently, Hanoi registered the largest commercial real estate transaction in five years, involving a 17,000-sqm lease at The West to a healthcare service provider. Future offerings include Tien Bo Plaza, Galex Tower Tran Nguyen Han, and Maslight Tower.

Energy Efficiency and Sustainability in Industrial Real Estate

In Q3, industrial land rents in HCMC surged by 5% quarter-on-quarter, reaching $240/sqm/term. A shortage of available land and outdated planning within established industrial parks have diminished HCMC’s competitive stance in this sector.

The city is progressing with plans to revitalize five existing industrial parks and exporting processing zones, anticipated to complete by 2025. Significant developments were primarily noted in other key markets such as Binh Duong, with the 700-ha Cay Truong Industrial Park; Dong Nai, with the 1,000-ha Bau Can-Tan Hiep Industrial Park (Phase 1); and Ba Ria-Vung Tau, with the 110-ha My Xuan B1-Conac Industrial Park.

Neighboring Long An is effectively attracting FDI, exemplified by South Korea’s CW Wind’s investment in a wind equipment manufacturing facility in the Dong Nam A Long An Industrial Park.

While Hanoi faced challenges from super typhoon Yagi in early September, causing localized flooding and logistical disruptions within some industrial parks, there’s a silver lining with ongoing expansions in industrial land at new clusters in Nam Phuc Tho and Long Xuyen, initiated in Q3. Secondary and tertiary markets are also seeing amplified approvals for industrial parks, enhancing long-term supply across northern Vietnam.

The emergence of new industrial projects must be aligned with energy-efficient and sustainable practices.

Chi Vu, Senior Manager of Industrial Services at Avison Young Vietnam, noted, “Vietnam is actively working to attract high-quality FDI, with energy efficiency and environmental accountability being pivotal for high-tech investors when considering industrial land leases. Thus, it’s crucial for industrial real estate developers to enhance facilities and diversify services to retain Vietnam’s attractiveness and competitiveness in the region.”

Performance of Serviced Apartments in HCMC and Increasing Supply in Hanoi

In Q3, HCMC’s prestigious 5-star InterContinental hotel—an integrated complex of hotel and 260 Grade A serviced apartments—was rebranded as the JW Marriott Hotel & Suites Saigon under Marriott International’s management.

On average, serviced apartment rents remained steady from the previous quarter, sitting at $39.1/sqm/month (or $1,490-7,400/unit/month) for Grade A apartments and $21.3/sqm/month (or $1,000-4,000/unit/month) for Grade B.

Despite being priced approximately 30% higher than residential apartment rentals, HCMC’s serviced apartments maintain an occupancy rate exceeding 80%, thanks to prime locations, appealing amenities, flexible leasing options, and promotional offerings.

Currently, Hanoi boasts around 3,400 serviced apartment units across both Grade A and B properties, almost 2,000 more than HCMC. This number is poised to expand further over the next two years, with key projects like PARKROYAL Hanoi Serviced Suites (126 units, Tay Ho district) and Somerset Metropolitan West Hanoi (364 units, Cau Giay district) on the horizon.

Q3 rental rates in Hanoi stayed constant at $31.9/sqm/month for Grade A and $15.9/sqm/month for Grade B. The most affordable rent was noted at Oriental Palace (Tay Ho district) at $653/unit/month, climbing to $7,550/unit/month at Lotte Center (Ba Dinh district).

Morgan Ulaganathan, Director of Asset Services & Hospitality Advisory at Avison Young Vietnam, expressed optimism about the serviced apartment sector, citing increased occupancy and rates fueled by the recovery in tourism and the influx of foreign professionals. “I foresee demand for serviced apartments and other hospitality real estate categories like hotels and resorts continuing to gain momentum as Vietnam increasingly positions itself as an economic hub, with Q3/2024 GDP growth hitting 7.4%, making it a compelling destination for international investors,” he stated.

Rising Retail Space Supply; Luxury Brands Focusing on Key Areas

In Q3, both Hanoi and HCMC welcomed new shopping centers, strategically launching ahead of the year-end shopping surge. HCMC saw the inauguration of Vincom Mega Mall Grand Park (Thu Duc city) and Parc Mall (District 8) in late July and August, respectively.

The 55,000-sqm Parc Mall hit 100% occupancy immediately upon launch, hosting tenants including the Aeon Ta Quang Buu supermarket. This positive reception helped elevate non-CBD occupancy rates by 5%, now reaching 81%, with rents stabilizing between $20-117/sqm/month. The CBD in HCMC remains a coveted destination for luxury brands, with recent openings from Longchamp, Lush, and Popmart in Saigon Centre.

Hanoi’s retail sector mirrored this vibrancy, introducing the Diamond Plaza Le Van Luong (Thanh Xuan district), a 14,800-sqm shopping center that opened in early September. Renting at $35/sqm/month, it achieved a preliminary occupancy of 60% and includes a branch of FujiMart supermarket. The Lotte Center Hanoi also made headlines by reopening after extensive renovations.

Across both markets, rental and occupancy rates remained stable quarter-on-quarter, with total retail space surpassing 1 million sqm, predominantly within malls. New projects such as Vincom Plaza Bac Giang, Go! Ha Nam, and Aeon Mall Hue commenced operations in the past quarter.

The retail landscape is set for further expansion by year’s end, with upcoming projects like Central Premium Mall (District 8, HCMC), Aeon Xuan Thuy (Cau Giay district), and Han Jardin (Bac Tu Liem district) in Hanoi in the pipeline. Potential future sites also include Aeon Malls in Hai Duong, Bien Hoa (Dong Nai), Tan An (Long An), and MM Mega Market Da Nang.

Vietnam’s retail real estate demonstrates resilience, fueled not only by developer competition for market footprint but also by a diverse range of retail formats, including convenience stores, department stores, and supermarkets. Thus, in-store shopping continues to be a vital driver for the sustained growth of Vietnam’s retail real estate and overall retail sector.