While prices and rents in most market sectors continue falling, demand will continue in specific sectors and certain locations. 

The continued growth in Hanoi has driven active interest from retailers, franchises and new businesses. In 2010, GDP growth in Hanoi is expected to reach double digits, just above 10 per cent. Hanoi’s role as the centre of commerce in northern Vietnam makes it vital that it act as a growth engine for the surrounding provinces. With continued residential demand, a rapidly expanding retail sector and more affordable office space for new businesses, Hanoi’s property market is well positioned to prosper through 2010, according to CB Richard Ellis Vietnam. 

Residential remains the strongest 

The residential market went on a wild ride during the fourth quarter of 2009. Forty per cent of 2009 supply launched in October and November; a sudden surge followed by a return to steady demand. Heavy speculation initially drove prices for new projects up until an excess of supply and lack of buyers reversed the trend and many projects returned to their launching price. Significant projects launched including Mulberry Land (towers E, D, and B with 768 units), Le Van Luong Residential (700 units), Indochina Plaza Hanoi (380 units) and Berjaya’s Canal Park (148 units). Stable existing or under-construction projects, especially in the west, benefited with a maintained rise in prices.

According to Mr Marc Townsend, Managing Director of CBRE Vietnam, more projects may launch in 2010 in Hanoi based on market conditions, with supply to increase significantly across all grades. He also forecast that the mid-range market would dominate transaction activity with more launches if demand persists, while small niche demand for luxury projects will remain. Foreign and joint ventures projects will also introduce high-quality mid range projects. The level of competition will bring actual quality closer to the pricing dictated by the market. Projects under $1,500 per square metre will make up the vast majority of units, although still expensive for most of the population.

2009 brought four new buildings with a total 43,000 square metres of leasable area. BIDV Tower brought 10,000 square metres of Grade A space to the CBD, while the other 33,000 square metres was spread across three buildings: Vinaconex 9, CMC, and Vinaconex Tower in the Midtown and Western sub-markets. Office rents continued to fall, albeit slowly, with a 2.3 per cent drop for Grade A buildings to $43.71 and only 1.18 per cent to $25.89 for Grade B buildings. Despite the modest drop for Grade B space, the reality is that two new buildings both launched above the market average due to their level of quality and large floor plates. Existing Grade B buildings in the CBD dropped rents over 8 per cent for quarter, successfully attracting new tenants.

2010 will bring over 150,000 square metres of space to the market. Despite the re-emergence of demand, vacancy in certain buildings will grow and rents will continue their downward trend. Mr Townsend believes that office rents office rents would not rise until construction slows. While net absorption of 2009 was 52,730 square metres, CBRE forecasted that 2010 should see absorption at almost double 2009 levels. Despite continued strong net absorption, 53,000 square metres of Grade A and B space is currently empty and looking for tenants at the end of 2009 with over 150,000 square metres of more space coming in 2010. 

Huge market changing buildings guaranteed to open in the next two years include Keangnam, Grand Plaza (Charmvit), EVN Tower, Capital Tower, Crown Complex and others. Developers finally come to terms with the idea of stable or falling rental levels. Stabilised new buildings will continue to rent at rates below comparable existing buildings. “If rentals continue to fall in new well located Grade A and B+ buildings, beware of major movements when the rent saved actually covers the cost of the move,” Mr Townsend said. More large companies, mainly local, will look to consolidate offices, expecting longer leases and favourable rentals. 

There was no new space launched in the fourth quarter of 2009, but activity among foreign brands and local franchisees remained high. High-end foreign brands took up the last remaining space in the CBD shopping centres, while many food and beverage chains expanded rapidly into shop houses across the city. No available space has allowed for a slight increase in CBD retail rents as current tenants renew. Next quarter will see some record rental levels for Hanoi as demand from luxury brands grows, according to CBRE. One positive CBD development is the announced restructuring of Trang Tien Plaza. In the best location in Hanoi, this retail centre has underperformed competitors due to mismanagement and a poor tenant mix. A renovation and restructuring should allow it to achieve the premier status in the city. Outside the CBD, good demand has reduced vacancy to 31 per cent, but besides Parkson and Big C most non-CBD retail centres still have substantial vacancies. 

2010 will be a great year for retail. CBD centres are primed to achieve rental growth, although renovated shop houses will continue to attract demand and limit rental growth potential. Although no rental growth is expected outside the CBD, continued strong demand, expanded offices and more residential towers will improve conditions for shopping centres especially along Pham Hung, where CBRE expects vacancies to move towards more reasonable levels (<15 per cent). With only 38,500 square metres of new retail space expected for 2010, almost all of which is located outside the CBD, current buildings are poised to improve their position.

Renovated shop houses will continue to play a main role in the CBD (Nine West, FCUK, Calvin Klein Jeans, Converse, and Mango are all in shop houses). CBD will still face limited supply, but the conversion of shop houses into modern retail shops will limit rental growth. Major projects in 2010 include Grand Plaza, Bac Ha Plaza and Xuan Thuy Tower. 

There was no new supply of serviced apartments launched in the fourth quarter of 2009, but two more projects are expected in early 2010 as part of luxury residential projects. Despite vacancy remaining constant at roughly 11 per cent for the market, average rents rose about 4 per cent to $29.70 per square metre per month. Much of this increase came from specific projects renovating or re-branding their projects and adjusting their rents accordingly. “Demand could grow with more businesses entering Hanoi,” said Mr Townsend. “The best serviced apartments have already stabilised and newer projects or older buildings may continue to see rentals slip but could stabilise during 2010.” 

CBRE expects stronger leasing activity in the first quarter as more new Asian expatriates come to the market. Rents however, are not expected to continue to rise across the market as new supply will enter the market and most of the rental increases were based on one time changes due to management changes or renovations. The best buildings should be able to slowly grow rents while others seem poised to introduce discounts to avoid further growth in vacancy.