Office, retail lease recovery seen

The office and retail space segments in two major cities showed signs of recovery in the first quarter, with a drop in overall vacancy rates, noted property services providers.

The overall vacancy of Ha Noi's retail space in the first quarter, this year, declined 1 per cent to 14.4 per cent against the previous quarter, but still reported an increase of 1.2 per cent in comparison to the same period last year, stated Nguyen Hoai An, the senior manager of CB Richard Ellis Ltd Company's Ha Noi branch.


By retail format, vacancy in shopping centres reported a quarter-on-quarter decline of 1.2 percentage points to 15.1 per cent, while departmental stores saw an improvement as vacancy rate was lower by 15.3 percentage points as compared to the last quarter, averaging 8.2 per cent.

Retail podiums no longer enjoyed 100 per cent occupancy as compared to last year, as many tenants relocated, thereby leading to a vacancy of 8.5 per cent.

Market performance was affected by newly opened projects during the quarter. As such, vacancy in non-centre business district (CBD) locations declined by 1.4 percentage points to reach 14.9 per cent, whereas that in the CBD saw an increase of 3.1 percentage points to reach 10.3 per cent.

The average market rent is US$39.7 per square metre per month, dropping 4.8 per cent quarter-on-quarter. By location, rents declined 14.6 per cent in the CBD and declined 3.7 per cent in non-CBD areas. Rents dropped as a result of lower rents achieved in existing projects as well as in new launches during this quarter, particularly in the CBD.

According to Savills Viet Nam Ltd Company, Ha Noi shopping centres, departmental stores, and hypermarkets had relatively stable occupancy since the first quarter of 2013.

Savills noted a dismal shopping atmosphere and low footfall in several large shopping centres and departmental stores, thereby hinting at soft performance. The long-term rental affordability may be questionable.

From the second quarter in 2014, the Ha Noi market is expected to have approximately 100 projects, supplying an additional retail space of 1.8 million square metres , of which, 800,000 square metres at 77 per cent of the current stock will come online by the end of 2015. Competition is expected to be fierce, and the retail market will be under greater pressure, Savills pointed out.

With regard to the office segment in Ha Noi, An said that both Grade A and B saw improved occupancy rates due to a stable supply of space and more attractive rental rates, which helped reduce Grade A's vacancy to 22 per cent from 24 per cent of the previous quarter. Grade B buildings vacancy decreased to 32.8 per cent, 1.1 percentage points lower than the previous quarter, as a result of a strong net absorption rate, but also due to two Grade B office buildings shutting down.

The decentralising trend continued as tenants moved away from the CBD. The West and Midtown new buildings have given occupiers the flexibility to upgrade and consolidate with larger floor plates and cheaper rents. The focus has been on consolidation and garnering advantage of limited or remaining cost-effective opportunities in new buildings with keen developers offering good deals to promptly fill up buildings. Flexible leasing terms and high-quality services are still the key to attract or retain tenants.

Savills Viet Nam concurred that Ha Noi's office space lease market has shown positive performance. Market occupancy was 75 per cent, up slightly 1 percentage point quarter-on-quarter.

This quarter, office take-up showed a sharp increase of 48 per cent quarter-on-quarter to approximately 49,000 square metres. All grades had positive take-up, stated Savills.

Occupancy up

Meanwhile, "the retail market performed better in this year's first quarter in HCM City with an increase of 4 per cent in average occupancy from the previous quarter," Truong An Duong, associate director of advisory and residential services for Savills Vietnam, told a seminar earlier this week.

Average occupancy was up 6 per cent at department stores – like Parkson – and 3 per cent at shopping malls.

The total retail space inventory was 850,000sq.m, 8 per cent up quarter-on-quarter and 7 per cent up year-on-year, due to the entry of one new shopping centre-department store and supermarket.

Retail sales in the city in the first quarter were worth VND152 trillion ($7.2 billion), an increase, without adjusting for inflation, of 7.2 per cent year-on-year, similar to the 2013 rate.

"This stable growth indicates that consumer spending did not improve strongly," Duong said, adding that food and beverage outlets, supermarkets, and retailers of other essential products and sevices should continue to have high demand for space.

Duong Thuy Dung, research and consulting services associate director at CBRE Vietnam, said location is not the single factor that matters in the retail sector.

She cited the example of Aeon Mall in Tan Phu District, which opened in January targeting middle- and low-income customers and has seen all 47,000sq.m taken.

While the average rent in the CBD has remained unchanged for five straight quarters, Dung said average rents in non-CBD ones increased by almost 60 per cent from a quarter earlier and 44 per cent from a year earlier.

Speaking about the office-space segment, Truong An Duong of Savills Vietnam said: "The average occupancy and rent have trended upward since the second quarter of 2013, and in the first quarter this year the rate climbed to 90 per cent, the highest in the last five years."

The average rent was VND531,000 ($25.2) per square metre per month, a rise of 2 per cent from the previous quarter and 3 per cent from a year earlier.

Duong noted that all three grades of office space recorded their strongest performance in the last five quarters, with grade A topping with a 92 per cent occupancy rate.

No new grade A and B buildings entering the market in the first quarter contributed to the increases, he said.

The total take-up in the quarter was 26,700sq.m. a 48 per cent rise quarter-on-quarter, he said.