The investment case of HCMC retail

January 28, 2013 / By

Amidst macroeconomic challenges in Vietnam, retail remained one of the country’s better performing sectors in 2012, as noted in our recent publication. So I took a look at how retail in Vietnam compares with that in Indonesia – a current hotspot, from both country- and city-level perspectives. The findings are summarised in the tables below.

Note: Click here for the full list of sources, methodology and explanations.

Over the short-term, Vietnam understandably carries higher country-specific risks than Indonesia at present, due to the macroeconomic environment. However, these two countries have fairly comparable demographics, such as population and age profile, as well as income growth prospects, as shown in Table 1. For retail property investors, perhaps an interesting indicator is the projected rise of the middle class – the main target market for prime retail centres. With these demographic prospects, long-term opportunities for retail investment properties apparently exist in Vietnam, as they do in Indonesia.

Favourable demographics have also paved the way for strong retail volume growth forecasts for both countries. Moreover, both have seen their retail sectors develop more quickly than the overall economy in recent years, signalling short-term opportunities for retail market participants (see Table 1 – Time Pressure).

Both countries still have relatively low levels of retail “market saturation”, suggesting modern retail sales areas and the penetration of international retailers remain modest. This can also be seen at the city level. As shown in Table 2, both Ho Chi Minh City (HCMC) and Jakarta have relatively low amounts of prime retail property stock considering their population and economic sizes, compared with the rest of Southeast Asia.

Nevertheless, prime retail property supply in the HCMC CBD has increased 35.0% annually on average over the past three years, from a low base. Meanwhile, the arrival of international retailers, via ownership and franchising, has also been noticeable, partly reflecting increased market saturation.

Prime retail rents in HCMC are considered high in Southeast Asia, behind only those in Singapore and Kuala Lumpur. This is quite an anomaly since the market remains immature and rents have seen corrections over the last one year. Anecdotally, many international F&B and retail outlets in HCMC are located in street-level shophouses rather than in prime shopping malls where foot traffic and visibility should be higher. Are these indications of a short-term lack of prime retail space?

If it does, there is room for short-, medium- and long-term investment strategies in the HCMC retail property market. Whether investors rely on market timing to capture excess returns arising from market anomalies or a buy-and-hold strategy to ride on the city’s long-term retail prospects, or both, our local team always works closely with regional Real Estate Intelligence Service (REIS) colleagues to deliver research solutions tailored to investors’ needs.

After all, it is important to note that HCMC still ranked second behind Jakarta among Southeast Asia’s best cities in terms of retail property “buy” recommendations in the 2013 Emerging Trends in Asia Pacific, after having ranked first in the region in all previous editions.


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