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5 race lanes of the HCMC's real estate market in Q1 2022

Quynh Dang • 31/03/2022

Cushman & Wakefield is positive on the real estate market of Ho Chi Minh City

Exchange rate 1 USD = 22.860VND

 

In the first three months of 2022, GDP had a positive growth rate of 5.3%, higher than the previous year but still lower than the pre-pandemic period. The registered capital of foreign direct investment (FDI) into the Vietnam market reached US$3.2 billion. Disbursed FDI capital increased the highest in half a decade by 7.8%, reaching US$4.42 billion.

Denmark is the largest investor in Vietnam. Specifically, Lego Group invested about US$1 billion to build a factory in Binh Duong, accounting for 41% of total FDI. Followed are Singapore and China.

As one of the fastest-growing countries in Southeast Asia, Vietnam’s population structure is in the golden age, with about 60% of a total of 99.7 million people being under the age of 33. With the economy continuing to grow, employment in the manufacturing and services sectors has grown significantly over the past three decades and is expected to continue to grow over the next 10 years, while boosting and improving income levels. 

After the manufacturing and processing industry, real estate is currently the second largest FDI recipient in the past 10 years in Vietnam, with real estate companies from Singapore, Korea, and Hong Kong has invested more than US$1 billion in Vietnam. In particular, HCMC and its neighboring provinces have always been the center of attraction for investors.

1. Residential market

• Apartments in HCMC

Since 2004, the total supply of apartments in HCMC has reached 315,000 units. In which, new supply in Q1 reached 2,500 units, coming from 4 projects: Vinhomes Grand Park (Beverly The Resort) - Thu Duc City, Akari City Phase 2 - Binh Tan District, Masteri Center Point - Thu Duc City, Picity High Park - District 12.

All new supply in Q1 was in the mid-end segment and had an average selling price of US$2,500/m2. The average selling price of the whole market including all segments increased by 8% q-o-q and 27% y-o-y, reaching US$3,300/m2. The apartment market's selling price has continuously peaked in the past 10 years, mainly due to the increase in land prices in the context of limited land funds, increasing cost of construction materials, and the introduction of luxury and ultra-luxury products in recent times, boosting the average price accordingly.

Demand remained stable with 2,300 units sold in Q1, down 20% q-o-q and 11% y-o-y. By the end of 2022, Cushman & Wakefield forecasts that the apartment supply will reach 10,000 units, with the popularity of the large-scale complex urban model and super-luxury apartments appearing on the market.

• Ready-built-landed houses in HCMC and neighboring provinces

In the past 3 years, the market has witnessed movements from real estate giants to HCMC’s neighboring areas with many RBL projects being developed. The total supply in HCMC and neighboring provinces including Binh Duong, Dong Nai, Long An, Ba Ria Vung Tau, since 2004 has reached 50,000 units. In which, the supply in the HCMC accounts for 49% with 24,500 apartments. In Q1, we recorded 4 projects in HCMC, offering 200 apartments to the market including The Global City - TP. Thu Duc, Van Phuc City - City. Thu Duc, Senturia South Saigon - Binh Chanh District, Bao Tan Residence - District 12.

The selling price of RBL houses in HCMC recorded a difference of nearly 3 times compared to the selling price in neighboring provinces. Specifically, the average selling price in HCMC was US$7,580/m2, up 30% q-o-q and 42% y-o-y. The significant average price increase in the quarter was mainly due to the record high selling prices of two projects in Thu Duc City, which also set a new peak in the market. The average selling price in neighboring provinces reached US$ 2,630/m2, up 6% q-o-q and 46% y-o-y.

RBL houses continue to be a popular segment with 300 units sold in HCMC. By the end of 2022, Cushman & Wakefield forecasts that the market for this product in the neighboring provinces will be more vibrant than that of HCMC.

2. Industrial hubs and logistics industry in HCMC 

Investment capital into Vietnam's manufacturing sector has grown significantly over the past five years, thanks to lower costs compared to China, with exports increasing by 11% per year on average from 2017 to 2021, driving the industrial real estate market.

The total supply of industrial land in HCMC and four key southern provinces including Dong Nai, Long An, Binh Duong and Ba Ria Vung Tau, remained stable at approximately 25,200 hectares, up 1% y-o-y. The average industrial land rental price was US$135/m2/lease term, unchanged q-o-q and up 3% y-o-y. Occupancy rate increased 2% q-o-q and slightly 4% y-o-y to 89%, driven by logistics and manufacturing tenants.

The food and pharmaceutical markets are the key drivers of cold logistics. At the end of Q1 2022, the total market supply reached 820 thousand pallets, up 1% over the same period. This volume of pallets has reached 95% occupancy rate, with an average rental price of US$0.88/day/pallet, up 3% over the same period. Supply is expected to hit 1.3 million pallets by 2025.

Ready-built factories and ready-built warehouses in the South have positive growth rates, with supply reaching 4,140,000 m2 and 3,520,000 m2 of floor space, respectively. The average factory rent is US$4.7 /m2/month, down 1% q-o-q and up 4% y-o-y; Warehouse rent is US$3.9/m2/month, up 1% q-o-q and 5% y-o-y. The factory's occupancy rate as of Q1 was 94%, up 23% q-o-q and 1% y-o-y, thanks to rental deals from the textile and electronic components manufacturing industry in Binh Duong and Dong Nai. For warehouses, the occupancy rate was 93%, up 7% q-o-q and 3% y-o-y; Typical transactions come from the e-commerce, 3PL and retail industries.

We estimate that about 23,000 hectares of industrial land supply will come to market. In the past few months, HCMC and neighboring provinces are experiencing a heatwave with record temperatures, and it can be said that the industrial real estate market is also spreading the same heat.

3. HCMC’s retail market

Supply chain disruptions due to the pandemic have led to a decline in demand for traditional retail space when shopping centers and stores are unable to open. With vaccine coverage and easing of travel restrictions within and between countries around the world, purchasing power is expected to return to its pre-pandemic state.

Entering a period of economic stability and recovery, the retail market in HCMC is gradually recovering with an occupancy rate of 94% and an average rental price of US$47.7/m2/month, an increase of 4.6% compared to 2021. Compared to the previous quarter, the total supply of traditional retail such as malls, department stores and retail podiums was almost unchanged, reaching 1.08 million square meters. In the next two years, it is expected that the market will have more new areas from Vincom Megamall Grand Park, Satra Center Mall and Socar Mall.

Recently, real estate giants have been focusing on building their own ecosystems. Building a diversified ecosystem including retail is how big companies capitalize on funds, introduce their own retail products to their community of residents and customers, and advertise the brand to the mass. For example, Nova Retail of NovaLand Group with a chain of stores distributing famous brands such as Nike, GAP, The Face Shop; Son Kim Retail of Son Kim Group with a chain of GS25 convenience stores and a chain of restaurants and spas. 

4. HCMC’s Office market

The market recorded new supply from two Grade B buildings including CMC Creative - District 7 and Pearl 5 - District 3 coming into operation in Q1 2022. Net absorption in the quarter was mainly from the above 2 buildings, with an occupancy rate of 90%, up 2 percentage points over the same period last year with stable rent at US$39.6/m2/month, a slight increase compared to the previous quarter.

By 2025, HCMC is expected to have more than 400,000 square meters of office space, coming from prominent projects such as Cobi Towers I & II, Techcombank Tower, The Sun Tower, IFC One, Hallmark, and The Nexus.

During the two years of the pandemic, the concept of working from home has become familiar and a necessity for businesses to continue operating during the peak of the social distancing period. The wave of working from home makes investors consider their requirements for office space in the long term.

5. Hotel Market

• Hotels in HCMC

International tourists to Vietnam in the first three months of the year reached 91,000 arrivals, an increase of 89% over the previous year. According to a representative of the HCMC’s Tourism Department from now until the end of 2022, there will be about 3.5 million international visitors if the situation improves. HCMC receives strong support from businesses and is considered a financial center in Vietnam. A wide range of international and domestic high-end and luxury hotel brands are present in HCMC, including IHG, Accor, Marriott, Hyatt, Reverie, Caravelle, Majestic hotel and Rex hotel.

According to a report by Cushman & Wakefield Vietnam, by Q1 2022, the total supply of 3-star, 4-star and 5-star hotels in HCMC is 17,000 rooms. The occupancy rate in Q1 was positive amid the pandemic, reaching 35.6%, up 1.6 and 2.1 percentage points q-o-q and y-o-y, respectively. The average room rent was US$73.6/room/night, down -5.3% q-o-q and down 4.2% y-o-y. Over the next three years, about 3,800 rooms across 18 private hotels will open across the city. 

Tourism initiatives in the city are also driving short- and medium-term tourism demand. One important initiative is the proposed reform of the city's water tourism, in order to take advantage of the vast tourism potential of HCMC’s canals and rivers, including floating markets on the river. The local government is also expanding new categories such as farm tourism and sports and has proposed plans to cooperate with suburban areas such as Can Gio and Hoc Mon districts to promote entertainment and culinary activities.

• Hotels in Da Nang

Da Nang is one of the most popular tourist attractions in Vietnam, with a long coastline and beautiful beaches like My Khe Beach. According to a report by Cushman & Wakefield Vietnam, as of Q1 2022, the total supply of 4-star and 5-star hotels in Da Nang is 11,000 rooms, which remains unchanged for past 2 years. The occupancy rate in Q1 2022 reached 30%, up 10.2 and 3.2 percentage points q-o-q and y-o-y respectively, driven by a rebound in domestic tourism around the Lunar New Year holiday in early February. The average room rate was US$70 /room/night, up 3% q-o-q and 20% y-o-y.

Over the next three years, about 4,000 rooms across 19 private hotels will open across the city. Da Nang and Quang Nam also joined Thua Thien - Hue province in the "Three localities, one destination" program, promoting natural tourism products and cultural and historical heritages of the Central region. Like HCMC and Hanoi, in recent years, Da Nang has seen significant improvements in economic growth, mainly due to industrial production. We expect Da Nang city with its reputation for high-tech workforce to be Vietnam's new Silicon Valley.

Market Outlook

In the first three months of 2022, the government has issued many decrees for the real estate market such as Decree 02/2022, Decree 16/2022, this is a step to simplify the procedures for the real estate business, as well as remove legal obstacles for projects. With the economy back on track, the real estate market also gathers momentum for the next 18 months. We believe that foreign investors are looking toward Vietnam with many corporations trying to understand the market and trying to gain a foothold in the Vietnamese market.

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