In the latest CBRE report on Vietnam’s property market in the first quarter of the year, the property market generally faced a positive outlook due to the strong and expanding economy.

Retail

The Ho Chi Minh City (HCMC) retail market saw no new supply come to the market in the first quarter of 2010 and with demand for space continuing to increase rental rates in both the CBD and non-CBD locations were pushed up. In the CBD, department store rents increased 3.3% quarter-on-quarter and shopping centre rents by 0.7% quarter-on-quarter, standing at US$108.8 psm/pm and US$98.10 psm/pm respectively for prime ground floor locations.

Vacancy remains very tight in the retail sector with shopping centres reporting only 7.3% vacancy, a fall from the 7.7% seen in the final quarter of 2009. Analysis of vacant space indicates that 98% is situated in non-CBD locations showing the continued preference from retailers for the CBD.

Marc Townsend, Managing Director of CBRE, commented, “The retail market in HCMC continues to strengthen as retailers are forced to compete for the few prime locations that are available. The first quarter of 2010 has seen rental prices across the city increase, a trend that will continue in the CBD in the second quarter as the Vincom Center retail space comes on line charging the highest rates within the CBD”.

Adam Bury, Manager of Research and Consultancy Services, CBRE added, “Retailers and retail developers and investors are reaping the rewards of the growing wealth and consumerism of the young Vietnamese population. The market will continue to grow as the middle class expands and we will eventually see fragmentation as non-CBD locations become increasingly popular. However, for the immediate future the CBD will still be the location of choice and retailers will be forced to compete for the few available retail spaces that will be coming to the market”.

Residential 

The residential market remained settled in the first quarter of the year despite suggestions by some commentators that the market was still overpriced and had further to fall.

Prices at the top of the market, in the luxury and high-end sectors, remained flat, whilst in the lower segments of the market the mid-end market saw prices increase by 2.9% on a quarter-on-quarter basis and the affordable sector saw a 2.0% quarter-on-quarter price increase. Interestingly, the high-end, mid-end and affordable sectors were all showing year-on-year price increases of 2.7%, 8.5% and 8.3% respectively.

The stabilisation that has occurred in the market is reflective of the continued demand that has been seen across all sectors of the market – this demand may have been stimulated by the clarification that has been provided regarding PIT regulations and renewed confidence in the Vietnamese economy.

Townsend reflected, “The modest year-on-year price increases that can be seen in the high-end, mid-end and affordable segments are reflective of what appears to be, at the present time, a healthy market. Particularly at the top of the market price increases have been negligible, emphasising the restraint that is being shown by both buyers and developers. Looking forward, favourable population demographics will provide impetus to the mid-end and affordable sectors as has already been recognised by the number of developers, and now for the first time investors, who are looking at this sector.”

Office

In the office market, Grade A rental rates stood at US$39.60 psm/pm at the end of the first quarter of 2010, reflecting a 2% quarter-on-quarter decrease. This did however help the vacancy rate to continue its downwards trend, finishing the first quarter at 15.6%.

Grade B and C rents also fell in the quarter by 3.2% and 5.3% respectively, standing at US$21.30 psm/pm and US$17.70 psm/pm. Despite the rental decreases, vacancy at Grade B buildings increased slightly from 10.7% at the end of the fourth quarter to 11.4% at the end of the first quarter, though it should be noted that there was a significant amount of new Grade B supply in the quarter (35,371 sm). Grade C vacancy decreased to 14%, from 16% in Q4 2009, as a number of whole buildings were taken by individual tenants who were able to gain preferential rates.

Bury commented, “The Grade A market is looking divided as existing buildings fill out and landlords look to increase prices, however with Vincom Center coming to the market offering discounted rates in its initial leasing phase and the Bitexco Financial Tower to follow later in the year it is likely that average Grade A rental rates will remain relatively flat. However, net absorption, across all grades, increased in the first quarter by over 14% quarter-on-quarter to 58,000 sm across all grades, emphasising increased demand and the long-term potential for sensibly positioned buildings”.