Property still showing vital signs of life

Developers must do careful research before jumping into retail projects

According to property consultants, the overall market remained gloomy, but there were bright spots.

Quarterly reports from property consultants across the country showed the long-suffering office segment had experienced some improvement, while the previously robust retail segment was showing the first signs of a downturn.

In the office segment, the downturn was still apparent in Ho Chi Minh City but Hanoi provided some cause for hope.

According to CB Richard Ellis (CBRE), office rents had fallen across all grades in Ho Chi Minh City, reflecting the overall decline in the economy.

“Overall Grade A rents continued to slide, but the rate of decline is decreasing. The two newest Grade A buildings, which have a higher proportion of vacancy compared to mature Grade A buildings, revised their leasing strategies to attract tenants. Compared to the third quarter of 2010, Grade A rents have declined 7 per cent, from $36.69 in the third quarter of 2010 to $34.13 in 2011,” CBRE’s quarterly report stated.

Truong Anh Duong, head of Savills Research in Ho Chi Minh City said the increasing supply had strongly impacted on the space absorbed and on rents of office for lease.

Grade B offices in Ho Chi Minh City were the most heavily affected, with only one quarter absorbed in the new supply, Duong said.

However, the office segment in Hanoi presented a more glowing picture. According to Do Thu Hang, head of Savills Hanoi research, the absorbed space of the office segment was much improved in Hanoi.

“This trend is quite surprising because according to our estimates the downturn in the office segment ought to take longer because a large volume of supply is joining the market,” Hang said.

“This improvement may not fully reflect the real health of the whole economy. However, it is a bright point in the property market at present,” Hang said.

In the retail segment, consultants have warned developers to research carefully before entering into any investments, since the markets in both Ho Chi Minh City and Hanoi are going to experience oversupply in the coming months.

Adam Bury, CBRE head of research in Ho Chi Minh City, said the retail segment had shown off its worst side during the third quarter of this year, with rents sliding between 11 and 15 per cent compared to the same period last year.

“Many tenants who signed up to space with high rents in the past are now discarding the contract and moving to more affordable space,” Bury said. He didn’t give more details but admitted that for the first time ever in Ho Chi Minh City, some shopping malls had announced they were going to reduce their rents.

Meanwhile in Hanoi, Savills also stated that there were now significantly fewer tenants selling electronic and electronics appliances. Around 20 per cent of tenants who were leasing space along Hai Ba Trung street were closed and seeking new space or changing their line of business.

However, Hang predicted that the worst time for the retail segment was yet to come as from 2011 to 2014, around 1.6 million square metres of retail space would come online. “This will really change the market structure of retail segment,” Hang said.

Bury added that along with the opening of a range of large scale retail facilities such as Kumho Link (revised from Kumho Asiana Plaza), Crescent Mall, Saigon M&C Tower and Eden A, developers would have to reduce their rents to deal with a more competitive market.

CBRE said developers in Hanoi now faced major challenges. These included oversupply favouring tenants, consumer spending remaining low, a limited choice of brands and retailers for tenant mix options.