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The next step for the Vietnam’s commercial real estate market

Quynh Dang • 31/01/2023

Commercial real estate - the invisible giant that cannot be overlooked for development in the next decade.

The Vietnam real estate market, especially the residential sector, is currently facing headwinds with daily news of low liquidity, credit crunch, bond issuance, and rising interest rates. There is a somewhat overlooked yet very major part of the market, a bit less noisy and relatively independent to the ups and downs of residential real estate.

Commercial Real Estate (CRE) is a term that applies to all the real estate assets that generate cash flow, including:

  • Office buildings (from skyscrapers to small buildings with only one or two companies)
  • Apartments for rent with at least five rooms
  • Stores, shops, retail premises in large shopping malls or small local shopping centers
  • Hotel and restaurant
  • Production zone, warehouse, etc.
  • Health care centers, hospitals, nursing homes
  • Schools, training centers

“We spend most of the day working in an office, shopping at the mall and spending our vacation days in resorts.” Ms. Trang Bui, General Manager of Cushman & Wakefield Vietnam said. “Looking at the real estate hierarchy of needs from Cushman & Wakefield’s research, we can see that real estate is crucial to some of the most basic and more advanced needs of humans. We estimate Vietnam's commercial real estate investment value could reach tens of billions of US dollars to adequately serve these needs in the near future.”


The commercial real estate market in Vietnam is still in its infancy, with a majority of assets concentrated in Ho Chi Minh City and Hanoi. According to the World Bank, Vietnam’s population ranks 15th in the world with nearly 100 million people. According to Ministry of Construction, Vietnam’s urbanization rate is at 40%, as cities welcome large numbers of immigrants every year and the rise of the next generation of young and tech-savvy workers (Millennials and Generation Z). 

The supply of Grade A offices in Ho Chi Minh City and Hanoi totals about 820 thousand sqm. This is low compared to other major regional office markets such as Tokyo (about 10 million sqm), Seoul (4.3 million sqm) or Singapore (2.6 million sqm) according to Cushman & Wakefield's 2022 report. 

“Most people from the previous generation, especially the families who migrated to big cities in search of a new life, worked hard for their family. They want their children to have proper education and a life that they could not have. The real estate needs of the first generation are thus mostly housing and production factories.” said Ms. Trang Bui. “We can clearly see more demand for commercial real estate from the new generation as they begin to reach the age to move out, start renting their own place, and have disposable income to spend more on experiences such as shopping, travel, health, education, and other leisure services”.

In the industrial sector, the first and most obvious signal is job growth. When a factory or industrial zone opens, all nearby ancillary properties ‒ rental homes, supermarkets, shops, gas stations, entertainment areas, schools, etc. ‒ will start to pop up to meet demand.

Most cities and towns have zoning ordinances that outline what and where to build. For example, if an area is planned for industrial use, the zoning model will be limited to that area. The same is true for parts of the city that are planned for commercial and residential areas.

An area of the city can be planned for both residential and commercial, and even production. This diversity helps investors choose how to develop their real estate strategy in each city. Regardless of the type of commercial real estate, a big factor in the success of the plan is the amount of investment from the city to make that zoning model a reality.

A great example is Thu Duc City, poised to become one of the main investment hotspots in Ho Chi Minh City with a detailed plan for functional subdivisions. Infrastructure in the central core of Ho Chi Minh City has long been overloaded due to rapid expansion. It is difficult to find vacant land, and the land value has reached a level that renders it almost impossible to invest in the construction of offices for lease when office rents have continuously peaked since 2008. The planning of Thu Thiem’s new urban and financial complex with more space for commercial real estate is a good solution, and once completed, Thu Thiem can help reduce the pressure that Ho Chi Minh is facing.

Investors often ask, “When is a good time to invest in commercial real estate?” And our answer is: “Right now, if you have access to the right kind of real estate in Vietnam, at the right price,” emphasized Ms. Trang Bui.

Most commercial properties have a certain average life span, no matter how well cared for. Once that limit is exceeded, the asset's value will decline and become obsolete if no renovations are carried out. 

For example, an office building built a long time ago will not have the latest and fastest Internet system or smart office devices installed, making it impossible to lease the space to technology/IT companies whose demand is rapidly expanding these past few years.

Besides, unlike new urban development projects in other countries, the lack of encouraging policies is one of the biggest obstacles to the growth of commercial real estate in Vietnam. Investors need a lot of support from the government on legal and tax-related issues. Creating a more favorable and transparent business environment will act as a catalyst to accelerate Vietnam's commercial real estate development, bringing it to new heights.

View the latest Markebeat from Cushman & Wakefield >> Ho Chi Minh City MarketBeat 



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