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Warning on wrong viewpoint on developing retail space

Warning on wrong viewpoint on developing retail space

“The retailing space of market, the commercial center of Vietnam is quite potential, but it will be a mistake when real estate investors keep their mind that as the project is constructed, tenants will naturally come.”

That is the recommendation of Mr. Matthew Powell, Director of Savills Hanoi when talking about the prospects of this market stressing that businesses will be eliminated without suitable investment strategy.

Differences between the South and the North

According to this expert, retailing market in Vietnam is an attractive market which is proved by the fact that Vietnam is ranked 6th worldwide Retail Growth Index of AT Kearney in 2017. Vietnam has a lot of potential to become an ideal destination for retailing businesses such as: Customer trust, the boom of e-commerce, free trade and infrastructure which are constantly upgraded and developed.

In addition, the retail market in Vietnam still has a lot of opportunities to develop as the retail density in Hanoi and HCMC is still low at just 0.26 and 0.12 m2 /person, much lower than other cities in the region such as Bangkok, Singapore and Kuala Lumpur.

However, despite having a potential development foundation, Vietnam’s market needs not only the quantity but also the quality of the retail space.

It can be seen that the biggest difference between the largest markets of Hanoi and Ho Chi Minh City. If the retail space in the southern city is concentrated in the central region at a rate of 13%, with higher rental rate, high occupancy and stable occupancy rate, Hanoi only provided 2% of the total ​​retail space in the central area due to limited land funds, high price and work’s height limits.

The retail real estate performance is also different: the rental rate of first floor has fallen 15.5% y/y in first quarter of 2017 and occupancy rates currently reaches only 85%, leaving 186,000 m2 of vacant area.

In addition, Vietnam is in a period of economic transition with profound changes in customer behavior. This can be seen clearly in the difference between the expansion rates of different retail sectors.

Affordable fashion, close to the global average price is currently the most developed sector, followed by other industries such as cinema, entertainment and cuisine which are on the momentum of development; Retailers are getting more responsive in responding to their customers’ daily needs and offering more affordable prices to consumers.

The luxury and jewelry industry have price 20% to 50% higher than the world average due to effects of tax and pricing issues. Businesses in this business line are currently focusing on improving the business of existing stores, shrinking and even closing of some stores.

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

Retail in Vietnam is a dynamic and highly competitive market. For new retail real estate projects to survive, it is necessary to have new and innovative designs and utilities to attract customers,” said Matthew Powell.

In addition, there are a number of trends that developers and owners may consider such as facilities, amusement parks, sportswear, new technology or co-working model which is quite popular at present.

There are some factors that should be cautious about such as quality planning and design, quality of management and marketing of the commercial center, competition from small retailers in townhouses, unofficial retailers and alternatives of retailers are also a factor to consider.

Don’t be hurry to “celebrate”

Savills’s experts said that the retail market is full of potential and opportunities. This is the prime time for Vietnam’s retail industry, but it is not certainly a time for retail real estate developers to “celebrate”.

Under the new development trend, retailers demanding expansion will seek cooperation with reputable developers. Successful retail real estate developers will find ways to attract retail businesses; The mistake is to keep the thought ” as the project is constructed, tenants will naturally come.”

Developers and owners of retail real estate projects should carefully combine project research and planning with long-term vision, actual assessment of future market competition, and how the changes in the retail market will affect its real estate projects.

In addition, customers in the retail industry are changing day by day; customers in the future will be the ones of the technological age, with the era of smart-phone, facebook or other technological gadgets.

Retail businesses will have to constantly change to catch up with the trends; Retail real estate projects also need to be adapted to so that they are not eliminated in this extremely potential yet highly competitive market.

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