Retail market sets stage for price competition

Rental price competition is expected to rise with the retail market coming under greater pressure due to Vietnam’s upcoming World Trade Organization commitments allowing foreign retailers full access to the market early next year.

From January 11, 2015, Vietnam will allow the establishment of wholly foreign owned retail businesses. Foreign firms are currently limited to forming joint ventures with Vietnamese partners, or franchising.

Nguyen Hong Son, head of Valuation & Financial Advisory of Savills’ Hanoi office, said that foreign players were preparing to take advantage of the WTO policy. He said recent events in the capital city such as the opening of Lotte mart Dong Da, leasing the four-floor outlet at the capital’s Mipec Tower and the debut of a Robins of Department Store under Thailand’s Central Group at the Vincom Mega Mall Royal City were evidence of this.

According to Son, the implementation of Vietnam’s WTO commitments would also lead to new, as well as old, retail operators entering or expanding their presence in the country. That, he said, would likely lead to greater profits from leasing retail space as demand rises.

“However, once new supply comes into plays, tenants will have a greater ability to negotiate rents and other terms,” he added.

According to Savills’ latest report, in the first quarter of this year two new retail venues were added to the Hanoi landscape with the total stock hitting approximately 1 million square metres, up 1% on-quarter and 36% on-year. Shopping centres dominate the market, supplying approximately 570,000 square metres, or 55%.

Hanoi’s retail property market has seen a downward trend in recent times, with average rents dropping 4% on-quarter and 6% on-year in the first three months of 2014, to VND1.1 million (US$50) per square metre per month. Buildings in the city centre marked the highest rents at round VND2.1 million (US$100) per square metre and secondary areas at VND 860,000 per square metre.

Hanoi’s shopping centres, department stores and hypermarkets have maintained stable occupancies since the first quarter of last year. Savills observed poor shopping volume and low foot traffic in several large shopping centres and department stores, suggesting soft performance. As such, long-term rental affordability may be questionable.

The Hanoi market is expected to have approximately 100 new retail projects by the second quarter that would supply an additional 1.8 million square metres, of which 800,000 square metres is due to go on line by the end of 2015.

At present, Vietnam’s available and potential retail space is well beyond that of neighbours such as Hong Kong, Thailand and Malaysia. Vietnam Report, a business survey company, revealed that retail ranked sixth among the top 10 highest ROA (return on asset) industries in Vietnam.

VIR/ VOVonline