Office real estate will continue to be attractive this year, both in Hanoi and Ho Chi Minh City, which will attract more capital influxes once the Trans-Pacific Partnership (TPP) takes effect, according to the CBRE Vietnam Market Outlook released on February 22.

Last year, the retail markets in Hanoi and Ho Chi Minh City each recorded 150,000 additional sq.m of net leasable area, it said.

Vacancy rates of shopping centres in Ho Chi Minh City were able to stay at around 10 percent thanks to their anchor tenants. Hanoi had the same performance with stable market vacancy at 8 – 9 percent. Despite increasing new supplies, these current trends are expected to remain the case for 2016.

Most projects in the central business district of both cities performed better than the average market thanks to their targeted high-end consumers. Thus, a rise in future average rents is expected but at a conservative pace, since more shopping centres in the non-central business district areas of Hanoi and HCM City have already diluted the average market rental price by 10 percent last year.

Vietnam’s office market stayed subdued in 2015 with only one new Grade A building in Ho Chi Minh City (Vietcombank Tower) and none in Hanoi.

However, Ho Chi Minh City’s office net absorption will decline in 2016 since there is no new supply completed and very limited vacant space left, and thrive from 2017 onward as supply increases and demand from foreign companies will spur take-up, given the current momentum of economic recovery and increasing FDI into the city. With a positive economic outlook, companies in Ho Chi Minh City will likely consider relocations and expansions, with the ideal office space being around 1,000-2,000 sq.m located in the city centre.

The surge of office supply in Hanoi over the past four years was the main cause for its rental price reduction. With the current net absorption lagging behind future pace of supply, vacancy for Grade A buildings is forecasted to be up seven points, reaching 24.7 percent in 2016. Demand is expected to grow in the next few years due to both multinational corporations and local enterprises’ expansion.

In the residential market, market confidence improved through well-attended launches, increasing sales volume and price improvements throughout 2015. Across all segments, an estimate of 41,787 units was launched in Ho Chi Minh City and 28,283 units in Hanoi.

In terms of demand, absorption in 2016 is expected to be slightly lower than 2015, then decline in 2017 and 2018 for both markets.

Hospitality remains upbeat as Vietnam becomes a new holiday destination, while industrial properties can expect strong growth as more multinational corporations are opening and expanding manufacturing facilities in Vietnam to take advantage of the TPP and other trade benefits.

VNA