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Not positive picture of rental real estate

not positive picture of rental real estate

The real estate for lease segment has not achieved good results as expected by customers although the occupancy rate is quite stable and is supported by many positive factors of the economy.

One of the reasons causing the ineffective   business performance of this sector in the second quarter was due to the new supply is quite large, causing the pressure of reducing price on most projects in and out of the center.

Office rental rate in Hanoi is down

According to a survey of real estate market in Hanoi and HCMC noticed by Savills on July 11, the highlight of the office for rent segment in Hanoi in the last quarter was that increase in capacity but decrease in rental rate.

Total office supply reached about 1,620,000 m2, up 0.2% quarter on quarter.

Average rental rate fell 0.8% quarter on quarter but rose 0.9% year on year, while average occupancy increased 3.7 percentage points quarter on quarter and 7.4 percentage points year-on-year. Rental capacity is improved in all three grades, especially grade A. Grade A projects in the central area achieved better result than out of center areas.

In the second half of 2017, three new projects currently being completed will provide an additional 46,000 m2. Future supply will still concentrate in the western and central areas.

The service apartment segment also has the same situation when rental rate fell but rental occupancy increased.

Savills’s survey has shown that total service apartment supply in Hanoi reached over 4,130 units from 50 projects, up 4% quarterly and 8% yearly due to the addition of two new projects and one B-class project is operated again. Even, from the next quarter, there will be 11/14 projects provide more than 1,830 units to the market.

And although in the first half of 2017, foreign investment to Hanoi has increased strongly when a large number of experts and businesses coming to Hanoi to seek for investment and business opportunities increased significantly, but average rent capacity still fell 1.4 percentage points compared to previous quarter. Average rental rate was USD 24.6/m2/ month, down 2.4% quarterly and 2.7% annually.

Remarkably, total rental units decreased by 46% quarterly.

For hotel segment, although the quarterly average rental capacity was stable and increased 10 percentage point yearly, average rental rate remained down 7% compared to previous quarter; average room occupancy decreased by 7% quarterly.

Meanwhile, statistics show that there are many factors supporting the development of this segment as Hanoi Statistics Department announced that in the first 6 months of 2017, there was about 2.33 million international visitors coming to Hanoi, increase 14% compared with the same period last year.

According to Savills, in the second half of 2017, more than 550 hotel rooms has been put into operation, creating more pressure on the market.

Only retailing space segment has significant recovery when the average rental rate of 1st floor increase slightly 3% quarterly. Average occupancy continued to increase with 3.5 percentage points quarterly due to the improved performance in all three categories – department stores, shopping centers and retailing segment.

Hotel rental prices in Ho Chi Minh City down

Meanwhile, in Ho Chi Minh City, the office rental market is more positive with one Grade A project and three Grade C projects just entering to the market. One Grade C building stopped operating after selling to new owner. Total office supply was about 1.64 million m2, up 3% quarterly and 4 % yearly.

Average rental rate increased by 4% quarterly and 5% yearly, with occupancy decrease slightly by 1 percentage point quarterly and yearly, mainly affected by new Grade A buildings. The acceleration the development of new Grade A projects and the need to upgrade office are the driving force behind rental rate increase in high-end segment.

The consulting unit said that with low occupancy expectations, Grade A and Grade B rental rate are expected to continue to grow slightly in the near future.

In the retailed segment, the total supply reached 1.2 m2 with 26,000 m2 from a shopping center, department store and a supermarket. Average rents fell by 2% quarterly but occupancy remained relatively stable. Rentals of trading centers and department stores tend to decrease as many new projects continue to offer competitive rents.

For service apartment segment, there are three Grade C projects, two in District 3 and one in Tan Binh, which provide 121 additional apartments to the market. Total supply of apartments reached 4,800 units, up 3% quarterly and 4% yearly.

Average consumption capacity increased 5% yearly but dropped 2% quarterly, reached ​​85%. Many vacant apartments in Grade A and Grade C properties are the main causes of reduced capacity. Average rents stabilized quarterly but increased by 2% yearly.

From the third quarter of 2017 to 2019, the service apartment market will receive more 1,900 units in the center, accounting for 52% of the share market over the total supply in the future. The second half of 2017 will receive a big race with new supply mainly from Grade A and Grade B.

More concerned, the hotel segment with total market supply rose 2% quarterly and 7% yearly, increase more than 16,500 rooms from 133 hotels.

~~>>Update on new information on the real estate news in Vietnam here: Vietnam real estate news

That led to rentals drop in all three categories during the low season, down 3% quarterly and 7% yearly to USD78/room/night. However, occupancy increased slightly annually and was seen as a significant improvement when the total supply increases continuously.

It is forecasted that from the third quarter of 2017 to 2020, there will be nearly 3,200 rooms of 14 projects entering to the market, thus creating pressure for capacity and rental rate reduction in this dynamic city.

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Not positive picture of rental real estate
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