APPD Market Report Article
Ho Chi Minh CityAugust 26, 2022
Trang Le, Head of Research, Vietnam
Demand is recovering across the city
- The positive net absorption reflected the increase in leasing activity in the quarter. Numerous significant domestic and international tenants with strong finances were expanding, such as Uniqlo, Muji and smart electronics devices retailers Digibox and TopZone (by Mobile World).
- Smart electronics and appliance retailers actively opened and expanded in the market, with experience-maker Brand K opening its first flagship store at Bitexco Financial Tower, marking its first market entry in HCMC. Two new local retailers, BRG Retail and Nova Commerce, have also been ambitiously expanding their retail chains recently.
Vacancy rises in the city centre
- The economy has gradually recovered post-pandemic, which has improved the overall occupancy rate across both submarkets, with an increase of 45 bps q-o-q, at 96.2% on average. Given that the available space in the city’s 13 prime shopping malls is limited at about 20,000 sqm, many regular tenants have had to compete to establish new agreements with landlords in those malls.
- In 2Q22, vacancy rate in the city centre temporarily increased by 290 bps q-o-q, mostly as a result of the withdrawal of anchor tenant, BHD Cinema, from Bitexco Financial Tower. Meanwhile, the city fringe vacancy rate decreased by 105 bps, standing at 3.5% by the end of 2Q22, thanks to improved take-up rates in the malls.
Net effective rent recovers to pre-pandemic levels
- Net effective rent in prime malls recovered to pre-pandemic levels in 2Q22, reaching USD 41.7 USD sqm per month, an increase of 12.2% y-o-y and 0.6% q-o-q. The high y-o-y increase is mostly attributable to the low net effective rent in 2Q21 (USD 37.1 sqm per month) as a result of rental concessions implemented during the second social distancing period in HCMC from June to September 2021.
- The quarterly rise in rents indicated a minor rebound in demand after the pandemic, especially during the short-term period of supply deficit from many planned malls falling behind schedule. Hence this has contributed to rising competition for available space in high-quality malls.
Outlook: Two new completions are expected by end-2022
- The market expects to welcome new supply during 2H22. Notably, Thisco Mall (formerly known as Socar Mall) is set to officially open in 4Q22 after being delayed several times due to the pandemic. In addition, the Union Square Mall is undergoing renovation and expected to fully open by end-2022.
- Rent is expected to grow at a modest pace, in line with the historical trend of pre-pandemic levels. Crowd-pulling categories, such as entertainment and experiential retail, will continue to make healthy inroads into malls.