CBRE Releases Hanoi Quarterly Report Highlights Q3 2021

Hanoi – October 6th, 2021 –

Hanoi Apartment-for-sale Market

In the first nine months of 2021, the total new launch of apartments in Hanoi slightly increased compared to that of the same period last year, though significantly lower than pre-COVID-19’s level. In particular, the total new launch during the first three quarters of the year was 11,430 units, up 7% y-o-y, of which Q3 2021 recorded 3,483 units launched, up 1% y-o-y. 93% of total new launch is from township developments in the East and West of Hanoi. Launching activities were mostly placed in July before a two-month lockdown period, and resumed in late September as restrictions eased. In terms of segment, there were only high-end and mid-end products launched in Q3 2021 with high-end segment covering 65% of the total new launch during the quarter. As residential projects and amenities within major township developments are being completed and handed over to the residents, decentralised townships were able to gradually upgrade their positioning and introduce new products at high-end prices in recent quarters.

Amid disruption in sales activities due to a new wave of COVID-19 from late July to late September, sold units recorded in Q3 2021 reached 3,000, down 33% y-o-y. There were a total of around 11,000 units sold in the first nine months of 2021, slightly down by 1% y-o-y. However, the market witnessed a positive signal on the sold rate of newly launched projects. In Q3 2021, newly launched projects reached a 52% average sold rate during their first launched quarter, which is higher than the rates recorded in 2019 – 2020 (41% – 42%).

In Q3 2021, primary prices of apartments for sale in Hanoi averaged US$1,542 psm (net of VAT and maintenance fee), up by 16% y-o-y due to the higher proportion of high-end projects in the total new launch in this quarter as compared to the same period last year. The secondary market experienced a relatively quiet quarter due to restrictions in traveling. Secondary prices averaged at US$ 1,156 psm as of Q3 2021, down 1% q-o-q and up 2% y-o-y. Rental yields continued to see impact of the pandemic and social distancing measures, especially in expats hubs. Rental yields in the CBD, Midtown and Tay Ho area ranged between 3.7% - 4.6%, lower by appx. 1 ppt as compared to pre-COVID-19 levels.

Moving forwards, the level of new launch is expected to hover around 17,000 – 18,000 units in 2021, which is similar to that of 2020 due to the impacts of COVID-19. Sold units are expected to recover in Q4 when sales activities resume. In 2022, contingent on how soon vaccination rates could reach a meaningful level, as well as speed of economic recovery and reopening of the borders, new launch and sold units could bounce back to 25,000 – 27,000 units. Primary prices are forecasted to increase at 5-7% per annum over the next three years driven by upgraded postioning in township developments and expected launches of high-end and luxury projects in prime locations. Ms. An Nguyen – Director of Hanoi Branch, CBRE Vietnam noted “Products with new and differentiating features continued to be introduced to the market, as a result of increasingly innovative R&D capabilities, as well as partnership between local and foreign developers; local developers and international project management companies/operators. This trend is expected to continue showing product diversification and stronger competition in the market.”

Notes on CBRE condominium ranking criteria:

  • Luxury: projects that have primary prices (net of VAT and maintenance fee) over US$4,000 psm
  • High-end: projects that have primary prices (net of VAT and maintenance fee) from US$2,000 psm to US$4,000 psm
  • Mid-end: projects that have primary prices (net of VAT and maintenance fee) from US$1,000 psm to US$2,000 psm
  • Affordable: projects that have primary prices (net of VAT and maintenance fee) under US$1,000 psm

Average Primary Price: US$ psm (excluding VAT and maintenance fee, quoted on NSA), including all projects available for sales

Hanoi Office Market

In Q3 2021, Hanoi office market welcomed one major Grade A project, located in the outer suburb, with a scale of nearly 90,000 sqm NLA. Total office supply of Hanoi market reached more than 1.6 million sqm NLA.

Due to a surge of the COVID-19 cases starting around May, Hanoi implemented social distancing for the majority of Q3 2021. The social distancing order disrupted the recovery of the Hanoi office market which was evidenced in H1 2021. Still, positive net absorption was recorded in Q3 2021, of more than 6,000 sqm.

As net absorption rate remained positive in Q3 2021, average vacancy rates of existing office projects slightly decreased compared to Q2 2021. However, the new project opening in Q3 2021 raised the average vacancy rate of Hanoi Grade A offices to 29.5%, up by 10.6 pts q-o-q and 5.3 ppts y-o-y. If the new project is excluded, Grade A vacancy rate was only 18.4%, down by 0.5 ppts q-o-q and 5.9 ppts y-o-y. Meanwhile, vacancy rate of Grade B office averaged 11.5%, slightly down by 0.p2 pts q-o-q and 0.1 ppts y-o-y.

With restrictions in traveling and transactions during most of Q3 2021, asking rents of existing office projects in Hanoi remained unchanged compared to Q2 2021. However, the one new Grade A office project in a non-traditional area with lower asking rents would reduce average asking rents of Grade A office in Hanoi. Excluding the new project, as at Q3 2021, Grade A and Grade B office rents of existing projects remained at US$26.9 and $14.0/sqm/month, respectively. Under the situation of prolonged lockdown period, landlords in Hanoi were offering several supporting policies, including extending fit-out periods or minimizing rental escalation at contract renewals.

According to transactions recorded by CBRE, office relocation was still the dominant trend in Q3 2021, accounted for 50% of all transactions in the quarter. Despite being affected by the pandemic, no contraction or surrender transactions were recorded in Q3 2021. In terms of industries, Banking/ Finance/ Insurance, Manufacturing and Technology/ Media/ Telecommunications sectors continued to be key sectors of movement.

Construction progress is delayed at several projects due to the impact of the pandemic and restriction measures. No new project is expected to come online in the last quarter of 2021, with projects totaling 90,000sqm expected to move completion schedule to 2022. Pipeline of more than 200,000sqm is expected over the next few years, mainly concentrated in Dong Da, Ba Dinh and the West. Absorption rate is also expected to improve in Q4 2021, bringing total net absorption in 2021 to 70,000 –  80,000 sqm, which is still lower than 2018 – 2019’s level but significantly higher than 2020’s. Rental levels of existing projects are expected to remain stable in Q4 2021.

Hanoi Retail Market

In Q3 2021, the retail market continued to see heavy impacts of the 4th wave of COVID-19 and strict pandemic prevention measures. By the end of September, accelerating rates of vaccination and encouraging signs of positiveness posted a positive recovery outlook for the retail market; however, compared to the same period from last year, the retail market has not improved significantly.

In terms of supply, the Hanoi retail market did not record any new project coming into operation in the third quarter of 2021. Retail current supply remained unchanged at more than one million sqm, NLA. Delayed openings have caused lower new supply observed in 2021.

Regarding market performance, the retail market has been significantly affected when shopping centers and other retail segments have had to temporarily shutdown in the past two months to ensure pandemic prevention measures. Asking rents on the ground floor and the first floor (excluding VAT and service charges) in non-CBD locations continued to decrease due to a number of projects with high vacancy rates proposing discounts to attract new tenants, as well as retaining existing tenants to stabilize occupancy rates.  Asking rents decreased by 4% q-o-q and 4% y-o-y, averaging US$24/sqm/month. With regards to vacancy rate, although some expansion activities were seen, vacancy rates has increased at 15%, up 0.4 ppts q-o-q and 3.8 ppts y-o-y. Certain shopping centers in Long Bien and further districts from the CBD area such as Nam Tu Liem and Ha Dong continued to record high vacancy rates of 35-45%. Average asking rents in the Hanoi CBD area have been on a downward trend, decreased by -1% q-o-q while increased 4% y-o-y, reaching US$103/sqm/month. Vacancy rates in the CBD have slightly decreased, reaching 10.5%. Compared to the same period last year, this rate had decreased by 0.5 ppts y-o-y.

Facing the prolonged effect of the pandemic, both retail developers and tenants have actively adjusted on their side to adapt to the situation. Some major retail developers have implemented rental policies to support existing tenants such as free rent during shopping centers closure period, or for tenants directly affected by the epidemic such as F&B, cinemas, entertainment centers. Other retail developers attempted to restructure the building's functions to be more optimal, such as converting empty retail space to office leasing. In addition, brands are also actively developing omni-channel sales models to ensure revenue sources on e-commerce platforms, social networks, and shopping apps. Some tenants also took the advantage of the shutdown period to upgrade their stores, shopping spaces, and promotional policies to welcome customers back to shop when business is back to normal.

In terms of tenants, Hanoi retail market witnessed the entry and expansions of a few familiar fashion and cosmetic brands; however, there were also a few brands that delayed their opening dates to the following quarters.

In the last quarter of 2021, Hanoi retail market is set to welcome 49,000 sqm NLA of retail space from Vincom MegaMall Smart City. An additional of almost 300,000 sqm NLA is expected to enter the market by 2024. Most of these new projects will be located in non-CBD area. Residents in the North and South area of the city will have more options to shop and enjoy the services when two large-scale projects, Lotte Mall Hanoi and Aeon Mall Hoang Mai, expected to be completed in 2023-2024.

Overall, expansion, merger activities along with new project openings will improve the retail market for the coming period once the pandemic is contained. Social distancing measures have gradually been eased, most importantly the possibility of vaccinating 70-75% of the population by Q2 2022 brings potential for the recovery of the retail market. However, it will take some time for the market to restore to its pre-pandemic level.