Pillars to fuel HCMC real estate market

Illustrative photo (Source: Internet)

According to Troy Griffiths, deputy managing director of Savills Vietnam, Ho Chi Minh City (HCMC) is undergoing massive changes in terms of demographics and infrastructure, along with a burgeoning middle and affluent class.

The city is believed to benefit from external factors such as trade tensions and the Government’s efforts to improve the efficiency of state administrative management.

HCMC’s population is predicted to reach 14 million by 2025, a steep rise from the current figure of 8 million. As a result, the residential sector is at the apex of HCMC’s growth, driven by a need for improved housing, a growing middle class, and an increasing number of overseas buyers.

HCMC serves as the country’s gateway city and a hub of commerce, capturing the growth in its dynamic residential market.

Strong immigration and a low urbanization ratio coupled with relatively high household occupancy and a large deficit of qualitative residential products are ripe for residential development. The market witnesses the first generation of high-density apartment living, which now allows affordable homes for the mass market.

Historical property supply in the city has predominantly been grade C dwellings as opposed to future supply, handovers, and launches tending to be mostly grade C. This is driven by owner-occupiers who are being overly exposed to debt, therefore the feasibility of a housing bubble remains low.

While grade C has largely been a market driver, more launches of grade A apartments and grade upper B ones are now occurring, occasionally at eye-watering prices. New grade A apartments tend to be located close to the central business district (CBD) and built in line with international standards.

Retail is also serving as another positive factor as the city’s retail industry has been performing well in recent years. The local supply has risen along with take-up and rents. Savills expects the total retail stock to stand around 1.4 million square meters and this figure is estimated to rise by one-third by 2021.

Consumers in HCMC prefer large-scale shopping centers as a leisure destination, forcing malls outside of the CBD to restructure their tenant mix by adding increased service tenants such as food and beverages, healthcare, education, and gyms. These types of tenants typically seek longer leases at lower rents which also serves to boost footfall. New malls tend to enjoy a large proportion of service tenants.

Elsewhere, the city’s office market has remained steady over the past five years, with rising rents, take-up, and even supply. Rents for grade A offices continued to lead the market, increasing by 2 per cent during the year’s first quarter and 13 per cent since early 2018.

HCMC has seen a rapid growth in the co-working space market in the last two years, with a rise of 90 per cent on year. Local co-working spaces have now reached over 37,000 square meters; of this, 56 per cent stand in the CBD.

Meanwhile, real estate service provider CBRE Vietnam asserted that flexible working spaces in HCMC are among the top three fastest growing markets throughout the Asia-Pacific region. Flexible working spaces are said to include service offices and co-working spaces.

The flexible working space market continued to enjoy rapid growth during the first half of 2019. During the second quarter of the year, the supply was added with more than 4,000 square meters, largely contributed by five new buildings, including Up Deutsches Haus, The Hive - Huynh Khuong Ninh, Compass Office - Landmark 81, Leo Palace 21, and Kafnu - Saigon Pearl.

The cumulative supply of flexible working spaces has reached 46,266 square meters, up 101 per cent against the same period last year. This figure is projected to double by the end of 2019, lifting the penetration rate of the flexible working space segment to the city’s total office supply from 2 per cent in the second quarter of 2019 to 5 per cent in the fourth quarter.