Serviced apartments remain strong after COVID-19

Serviced apartments are looking at good prospects after COVID-19

"The serviced apartment segment is closely correlated with the flows of foreign investments and expats arriving to work for major international companies. The asset class has held up well and the long-term potential for Hanoi remains good, with many MNCs contemplating relocation to Vietnam," said Hoang Nguyet Minh, associate director of investment at Savills Vietnam.

According to the Hanoi market report of Savills, in the first half, total supply from 51 projects was down 2 per cent on-quarter to approximately 4,621 units. One Grade B and one Grade C project closed. Occupancy decreased by 4 percentage points on-quarter and 13 pptson-year, reached its lowest level of 70 per cent.

Grade A performance in the first half remained steady with 69 per cent of total units occupied. Long-term leases steadied the segment's performance with average rent easing slightly -1 per cent on-quarter to stay at $26 per square metre monthly.

Overall resilience showed with 50 out of 52 sites still in operation after lockdown eased with 22 per cent retaining around 90 per cent occupancy.

Multinationals shifting supply chains to Vietnam to escape US-China trade war-related tariffs are starting to accelerate. The northern industrial market, alongside accommodation providers, is anticipating a post-pandemic expat-driven wave of demand.

Hanoi gained $1,217 million of registered foreign direct investment (FDI) in the first half, equivalent to 25 per cent of the same period last year. Investor trust in Vietnam has been further amplified by effective pandemic containment alongside the recent EU-Vietnam Free Trade Agreement (EVFTA) ratification.

By June 2020, three industrial projects financed by investors from Japan, South Korea, and Hong Kong accounted for 53 per cent of total newly-registered FDI. Asian expats are expected to be a key tenant target for serviced apartments.

Business leverage

The government has reacted to the pandemic by issuing timely support for affected enterprises and employees. Resolution No.84/NQ-CP permitted expats to receive new or extend existing work permits. Additionally, organisations, households, and individuals received 15 per cent discounts on renting land directly from the government.

Law No.51/2019/QH14 allows expatriates to change the purpose of their visa without the need to leave and re-enter the country. Resolution No.79/NQ-CP regulating e-visa issuance for 80 countries for stays of up to 30 days regardless of purpose. Foreigners finding work in Vietnam or entering under an e-visa may change their visa status after securing a work permit. These changes are intended to reduce immigration procedures and costs while facilitating investment and tourism development.

Seven projects with approximately 770 units are expected to come online in 2020. With 73 per cent of this new supply, the secondary area will remain the most competitive in 2020. This area is also scheduled for 71 per cent of the total future supply. However, the other regions/districts Gia Lam, Dong Anh have started introducing large-scale projects. Post-pandemic, serviced apartments may see increased competition from hotels or rental platforms.