Hanoi property demand outpaces construction

“Foreign investors are taking notice of Vietnam as news of the benefits of WTO accession spreads around the Asia-Pacific region.”

Consultants have revealed that properties in Hanoi will be in short supply for the rest of the year, however, the market should expand once new projects are completed in the next few years.
The latest information from property consultants at CBRE reveal that there is little office space available for the rest of year as all grade A and B buildings are already almost fully occupied as a result of limited supply and robust demand.

Low vacancies
“Hanoi is the only city in Asia where vacancy is so low and take-up is so strong,” said Marc Townsend, managing director of CBRE. Nearly 100 per cent of the 80,395 square metres of office space that was released last year has been leased.
The consultant forecast that there would be few vacancies in the near future and demand would be on the rise for top-quality space. Rentals should stay firm in the coming months and increase by between 10 to 15 per cent until the new group of grade A office buildings are completed.
CBRE claimed the current tightening of office space was being further exacerbated by the emergence of demand from Vietnamese companies, who are conscious of the benefits that a prime office address brings to their corporate image.
The demand for office space is also set to increase due to the growing rate of foreign direct investment and the increasing expansion of multi-national corporations, diplomatic missions and non-government organisations.
“Foreign investors are taking notice of Vietnam as news of the benefits of WTO accession spreads around the Asia-Pacific region,” said Townsend.
New supplies of office space for the remainder of the year is expected to reach around 20,000sqm and will be limited to grade B office space located outside the central business district. More Grade A supply is not expected until the end of next year.
CBRE updates showed that although rental levels for centrally located offices are expected to rise over the next two-to-three years, there could be a rental compression following the release of a relatively large supply of grade B rental space.
At least two grade A and 32 grade B and C office developments, with a total floor area of approximately 130,000sqm, are currently under construction. Projects slated to be completed in the final quarter of 2005 and during 2006 onwards include Pacific Place, VIT Tower, Opera Business Centre, Hacinco Tower and Devyt Tower.
“2006 will be an interesting year as a lot of new buildings will be released onto the market,” Townsend added.

Budget housing
The demand for serviced apartments for lease is also strong due to the growing economy, rising foreign investment, new foreign corporate arrivals, and the increasing number of expatriates in the capital.
“There is more demand from people with a budget of $1000-2,000 per month, particularly Japanese, Korean and Taiwanese staff working for commercial firms,” Townsend said.
Investors are preparing to take advantage of the market and, as a result, the supply of serviced apartments, which are enjoying a 98 per cent occupancy rate, will also improve in the next two years with several projects coming online.
Initially there will only be 100 new units available, but the figure is expected to increase to close to 600 units in one year’s time. The two earliest apartments available will be the Skyline Building under construction on Truc Bach Lake, and Pacific Place on Ly Thuong Kiet street.
Golden Westlake is the biggest serviced apartment project due to be completed in the next few years, providing a total of 375 units for sale and lease. The $115-million Hanoi City Complex is scheduled for completion in 2009.
Townsend said the residential market for sales also has a strong outlook in the face of growing demand. However, he added buyers who were now backed financially by banks were more discerning.
“Buyers will move away from projects that are not completed on time,” he said.
The supply of high-end condominiums, with prices of more than $600 per sqm in Hanoi this year will be around 650 units, but will increase by up to 2,000 units next year. New supply is forecast to decrease to 713 and 334 units in the two subsequent years.

High retail
The retail market also looks good for the future as demand continues to rise due to higher personal disposal incomes. There will be no new supply in the next year and rental rates are expected to remain high.
Trang Tien Plaza scores the highest rental rate at an average of $35 per sqm per month, followed by Vincom City Towers and Big C Thang Long, which are leasing at $30 per sqm. Ground floor street-facing retail stores in grade A buildings can cost between $50 to $80 per sqm.
Famous name new entrants to the Hanoi retail scene are finding it increasingly difficult to find suitable space due to the high occupancies in trade centres. However, boutique and specialty stores will find more options available in the next six-to-18 months.
New shopping centres slated for Hanoi include The Garden, Pacific Place, Cau Giay Complex, Hoa Binh Twin Towers, and Hanoi City Complex. However, the most noteworthy project is Ciputra Mall, which is expected to be completed in 2007, and will supply 110,000sqm of retail space for lease.
However, Towsend said Ho Chi Minh City would remain the port of call for retailers who were taking space at both shopping centres and individual sites.