Retail Rental Market in Ho Chi Minh City Thrives With a Growing Middle Class

Amidst the challenges faced by the real estate sector, retail property in Ho Chi Minh City has remained remarkably stable during the first nine months of this year. The growing middle-class in the city is contributing to this stability, which has spurred the expansion of various sectors, including dining, entertainment, and fashion.

Steady Retail Rental Landscape

Savills Ho Chi Minh City recently published a Q3/2023 market report, which highlighted a decrease in retail stock. The total floor area available for retail rentals stands at approximately 1.5 million sqm, a decrease attributed to the conversion of some retail projects into office spaces or their outright sale.

Despite a slight reduction in stock, occupancy has remained steady and high at around 91%. However, rental prices have fluctuated. In non-CBD areas, rents had a quarterly increase of 1%, reaching VND 1 million /sqm per month. Rent trended upward as Pandora City and Cantavil Premier, which previously offered more affordable rental rates, withdrew from the market.

Conversely, central areas of the city have managed to maintain high rental prices, with rates soaring up to VND 3.3 million/sqm/month, a staggering three times higher than in non-CBD areas.

Ms Giang Huynh, Associate Director, Research & S22M Services, Savills Ho Chi Minh City, emphasised the unique characteristic of the city's market — the substantial price disparity between central and non-central areas. She stated, "Rental prices in central areas consistently remain high due to the limited stock, which accounts for less than 10% of the total market stock. Simultaneously, brands and businesses have high demand for space in the city centre. This has emboldened landlords of CBD projects to maintain high rental rates and occupancy levels."

Notable occupancy decreases have challenged retail podiums. Occupancy fell from 100% in 2010 to 80% in the third quarter of 2023. Rent has also softened by -6% per annum, plummeting to VND 0.8 million/sqm/month.

The decrease was driven by the concentration of retail podium stock in the inner-city and suburban areas within low to mid-range apartment projects. Suboptimal designs and inefficient marketing efforts by retail podium operators have also played a role.

Middle-Class Demand Driving the Market

Savills Viet Nam's Q3/2023 market report highlights that food and beverage (F&B), fashion, health and beauty, and entertainment sectors took the most new lease transactions. Significant demand for dining, shopping, and entertainment activities by the middle class is supporting the expansion of these sectors.

The outlook for 2024 includes the introduction of new supply from four projects, with some planning renovations and changes to their tenant structure to revitalise the retail cycle.

Ms Cao Thi Thanh Huong, Senior Manager, Research Department, Savills Ho Chi Minh City, expressed optimism about the positive economic growth in the country, which is encouraging new brands to expand their presence in non-central areas.

According to a study by Savills Global, the urban population is forecast to double by 2050, constituting 70% of the world's population. While rapid urbanisation presents significant housing and infrastructure challenges in developing countries, it also offers opportunities for real estate investors seeking rental growth.

Notably, in the Asia-Pacific region, including Viet Nam, many areas are poised for continued remarkable growth, driven by a youthful population and rising incomes, factors that will continue to stimulate the commercial real estate market.