Short-term uncertainty in Ho Chi Minh City's commercial sector but longer-term outlook still bright: CBRE

THE short-term outlook for the office market in Ho Chi Minh City may be uncertain with the new Covid-19 wave, but the residential condominium market is doing well, said CBRE (Vietnam).

On the office market front, vacancy in Grade A buildings continued to decrease, by two percentage points quarter on quarter mostly due to new leased areas at new buildings in District 1 and District 7, which offer high quality and proximity to existing office clusters. In the Grade B segment, the vacancy rate was stable.

As at Q2 2021, the vacancy rate of Grade A and Grade B segments was 12.2 per cent (up 0.4 percentage point y-o-y) and 9.1 per cent (up 4.3 percentage points y-o-y), respectively.

As at Q2 2021, the total supply was 1,433,327 square metres (sq m) net lettable area (NLA) from 18 Grade A buildings and 69 Grade B buildings.

The rental rate of Grade A and Grade B was US$41.60 per square metre (psm) per month (down 6.4 per cent y-o-y) and US$25.10 psm per month (down 1 per cent y-o-y), respectively.

Net absorption was positive for Q2 2021 at both Grade A and Grade B buildings, bringing total net absorption for H1 2021 to over 33,300 sq m NLA.

Based on CBRE's transaction, renewal and expansion accounted for 82 per cent of the total number of transactions in Q2 2021. The top four leading industries were information technology, finance/banking, logistics and retail/trade/e-commerce, accounting for 78 per cent of total transacted areas.

Manufacturing and flexible workspace, although being active prior to 2020, was hit hard by the pandemic and did not expand strongly at conventional office buildings.

"Although in the short term, the market is uncertain due to the effect of the new Covid-19 wave, the outlook in the medium term is positive. New supply with a focus on high quality and adoption of green/wellness credentials are a strongly growing trend, which will add value to landlords' portfolio," said Thanh Pham, associate director of CBRE Vietnam, Research & Consulting.

On the retail front, vacancy rates in non-CBD areas decreased by 1.4 percentage points q-o-q due to new openings of big anchor fashion brands such as Decathlon and Uniqlo in April and May. Within the CBD area, the limitation in supply has kept vacancies at a low level.

As at Q2 2021, the vacancy rate for CBD and non-CBD areas were 1.87 per cent (stable y-o-y) and 11.71 per cent (down 1.7 percentage points y-o-y), respectively.

As at Q2 2021, rental rate in the CBD was US$137.10 psm per month, up 1.1 per cent q-o-q (and up 1.2 per cent y-o-y). The rental rate outside the CBD was US$33.90 psm per month, down 2.3 per cent q-o-q (and down 5.2 per cent y-o-y).

The city is expected to have over 200,000 sq m of new retail space until 2023, both in CBD and non-CBD areas.

Market sentiment and consumer confidence are expected to recover rapidly once the pandemic is thoroughly controlled and vaccination is ramped up throughout the nation, said CBRE.

Ms Pham said: "To adapt to the new normal in retail, retailers are working their best to deliver a higher standard of customer experiences. Focused categories would be fashion, health and beauty. Online shopping during pandemic times cannot satisfy consumers' need for the actual in-store experience."