APPD Market Report Article
Ho Chi Minh CityNovember 28, 2022
Trang Le, Head of Research, Vietnam
Demand shows stronger recovery in both cities
- Overall leasing demand has improved. Overall occupancy rate remained high in 3Q22 at 96.6%. Leasing activity in the suburbs was broadly similar to the previous quarter. Net absorption increased to about 2,300 sqm in 3Q22 across prime malls.
- Despite the current inflationary spiral and escalating input costs, several retail sectors are still expanding. F&B tenants, like Haidilao, Pizza 4P’s and Nova F&B, continue to influence the retail landscape in the city by expanding into prime malls and standalone street shops.
No new supply in 3Q22, but some aged malls are renovating
- Supply remained unchanged in 3Q22. Notably, some non-prime malls are renovating to upgrade mall quality and improve footfall. For example, the aged department store, Diamond Plaza, is now refurbished and anticipating the addition of 12,800 sqm to prime malls in City Centre in 2023. Also, Lotte Mart Phu Tho in District 11 is renovating around 2,000 sqm on the fourth and fifth floors.
- Several big players in the market have recently made forays into retail development, by acquiring good land banks for their store expansion plans. The scale is not limited to standalone buildings, but also includes large-scale malls. For example, Nova Group with the Nova F&B chain, and Masan Group with its new concept, WINLife store, which combines pharmacy, banking and convenience services.
Net effective rent rebounds higher than pre-pandemic levels
- Rental growth recorded at 1.1% q-o-q across the city and reached a higher level compared to pre-pandemic levels in both submarkets. The rents of prime malls in the City Centre increased 1.3% q-o-q. Meanwhile, City Fringe rents recorded a lower growth rate of 1.1% q-o-q, due to the more competitive malls in this area.
- Investors have long-term confidence in the retail market in HCMC due to large expansion plans of big retailers post-pandemic. In 3Q22, market yields have decreased to 7.15% in the City Centre and to 9.12% in the City Fringe. Capital values increased 2.9% q-o-q in the quarter, reflecting slight rental growth and confident cap rates.
Outlook: Overall leasing demand is expected to grow further
- Thiso Mall is scheduled to open the earliest in Thu Thien NUA. Vincom Grand Park in District 9 will enter the City Fringe market in 2023 with 30,000 sqm (NLA). Union Square’s 4Q22 reopening has been delayed until late 2023 or later. Together with Sun Ba Son, new supply in the City Centre is expected to reach 50,800 sqm.
- Rent is expected to grow and accelerate mildly given the improved leasing demand outlook and the small number of high-quality malls compared to the total population in the city. Strong demand, combined with an abundance of high-quality assets in the pipeline, is likely to drive up leasing demand.