Hanoi – July 7th, 2020 In the context of the COVID-19 outbreak that has been affecting the global economy seriously, along with the continuing U.S – China trade war, and other geopolitical tensions, Vietnam’s economy was negatively impacted. In the first half of 2020, Vietnam’s GDP growth was recorded at 1.81% y-o-y, the slowest 6M growth rate over the last 10 years. CPI in 6M 2020 was up by 4.19% y-o-y, slightly higher than the National Assembly’s expectation.
In 6M 2020, Vietnam’s export was recorded at US$121.2 billion, down by 1.1% compared to the same period last year. During the period, the United States was the biggest export partner, accounted for US$30.3 billion, up by 10.3% y-o-y. With the significant growth in the cellphone and its components (up by 127.9% y-o-y), China ranked the second biggest export partner with US$19.5 billion, an increase of 17.4% y-o-y. Regarding the country’s imports, in the same period, the total import was at US$117.2 billion, down by 3% y-o-y. China continued to be the major importing country of Vietnam’s goods, at US$ 34.8 billion, down by 2.2% y-o-y.
Total registered foreign direct investment in Vietnam in 5M 2020 reached US$ 13.9 billion, down by 17.0% y-o-y. In this period, the manufacturing and assembling industry surpassed the production and distribution of electricity, gas, water, and air-conditioning to be the most attractive industry, with about US$ 6.9 billion, accounted for 49.6% of total registered FDI.
With the continuing travel restriction, quarantine regulations, and reluctance to travel due to the COVID-19 outbreak, Vietnam’s hospitality market in the first half of 2020 continued to be severely affected. The incurring international arrivals to Vietnam are mainly foreign experts and technicians working on projects in Vietnam. In 6M 2020, Vietnam welcomed 3.74 million international tourist arrivals, down by 55.8% y-o-y.
Condominium
In Q2 2020, there were approximately 5,600 units launched in Hanoi leading to a total new launch during H1 2020 of around 7,200 units – down 65% y-o-y. Though the new launch supply in 6M 2020 declined significantly as compared to 6M 2019 due to Covid-19 disruption, the new launch of Q2 nearly tripled that of previous quarter showing recovery of sales activities. In terms of segment, 88% of units launched in Q2 2020 were from mid-end segment while the remaining were high-end products.
Sales momentum were relatively positive in Q2 2020 as compared to previous quarter, with more than 50% of units launched during the quarter having been absorbed. In Q2 2020 there were a total of 5,100 sold units, more than double that of previous quarter. The sales picked up in Q2 thanks to active sales activities after end of nationwide isolation period. Diversification in sales channels (online channels combined with direct marketing via sales events, etc.) have boosted the sales during the quarter. Local buyers are key focus of developers during the first half of the year as foreign sales has been disrupted due to suspension of international flights.
Selling prices in the primary market in Q2 2020 averaged US$1,379 per sqm (net of VAT), up by 3% y-o-y. While mid-end products from township developments see higher selling prices over the time due to increasing amount of amenities, landscape and infrastructure, this segment witnessed the highest y-o-y growth of 4% among segments.
Moving forwards, the level of new supply is expected to stay at around 18,000 - 20,000 units in 2020. Ms. An Nguyen – Director of Hanoi Branch, CBRE Vietnam noted “The lower level of new supply in this year allows sales to catch up quicker with the new launch which had been staying at a high-level over the past five years”. Annual total of sold units might be lowered to around 15,000 – 17,000 units in Hanoi given modest sales performance in H1 2020.
The primary pricing is forecasted to remain flat in H2 2020 since new supply is heavily dominated by mid-end segment and higher competition in this segment making it harder to escalate selling prices.
Office
In Q2 2020, Vietnam successfully contained COVID-19 pandemic and business activities returned to normal. Hanoi office market observed some impact of COVID-19, as certain tenants started contracting their office space. Total net absorption of Hanoi office in Q2 2020 market was around (17,000) sqm, most of which was in Grade B office, with (15,000) sqm contraction.
Due to the contraction of tenants, vacancy rates of both Grades increased in Q2 2020. Grade A vacancy increased by 0.4ppt q-o-q, to 7.6%, while Grade B vacancy increased by 1.7ppt q-o-q, to 11.0% as at the end of Q2 2020.
In term of asking rent, both Grade A and Grade B buildings rents remained relatively flat compared with previous quarter. As of Q2 2020, average asking rents of Grade A office were recorded at US$26.2/sqm/month, down by 0.2% q-o-q and 0.9% y-o-y. Grade B office’s asking rents averaged US$14.2/sqm/month, down by 0.9% q-o-q and 0.4% y-o-y.
Total Hanoi office supply in Q2 2020 remained at around 1,380,000 sqm NLA as there was no newly completed project. H2 2020 expects to welcome new major projects totaling 160,000 sqm of new supply.
In H2 2020, due to the ongoing impact of COVID-19 and the large future supply, vacancy rates of Hanoi office market are expected to increase to 15 - 20% in both Grades. Rental movements are expected to differ among buildings as landlords seek to compete for tenants.
The outbreak of COVID-19 is expected to have a long-term impact on office sector. Based on a survey by CBRE in APAC, the application of flexible working and supporting technology are the most adopted strategies to recover after the outbreak as well as in long-term. On the landlord side, buildings with WELL/Green features would be more attractive for tenants.
Retail
As social distancing period ended on April 23rd, businesses have gradually returned to the usual working state with shopping malls now operating again, despite limited working hours observed in some projects. Both landlords and retailers remained to exercise business with extra caution, as we continued to see relentless efforts in safety and hygiene management.
Regarding supply, Hanoi welcomed no new project during the first 6 months of 2020, leaving the total retail stocks unchanged at over 1,000,000 sq. m. NLA.
Market performance in Q2 2020 reflected some adjustments on asking rents and vacancy rates due to the coronavirus outbreak. Ground floor asking rent in CBD increased by 2.5% y-o-y and remained unchanged by quarter, reaching US$98.1/sqm/month. With comparative advantages on prime location and limited new supply, CBD area recorded a more optimistic performance comparing to other retail clusters. Vacancy rate continued to stay low under 1%, down by 0.7ppts y-o-y and remained unchanged when compared with the previous quarter.
In contrast, non-CBD area recorded certain downward adjustments regarding market performance, as we came to observe rent discounts at selected projects. Ground floor asking rents averaged US$24.7/sqm/month, down by 0.7% y-o-y and 0.5% q-o-q. Vacancy rate reached 9.78%, which is 1.11ppts and 1.63ppts higher, by year and by quarter respectively.
The pandemic has created a very challenging business landscape for retailers and resulted into significant changes regarding brands’ strategies for the rest of 2020. A recent Asia Pacific Retail Flash Survey done by CBRE Research in Q2 2020 showed that 65% of the respondents planning to put expansions and new openings on hold. Meanwhile, future planning shall be subjected to more stringent evaluation process. Particular categories such as fashion and accessories have reported y-o-y revenue loss both on global and Asia/Asia Pacific levels, of up to 30 – 45% while announcing store closures across locations. Regarding domestic scene, Vietnam is expecting a temporary pause in the influx of international retailers during 2020. However, the country still proved to be an attractive destination to foreign brands as we observed consecutive openings from major players such as Uniqlo (from Japan) and Haidilao (from China) over the last 6 months.
Future supply in 2020 is expected to approximate 54,000 sq. m. NLA. The outbreak of Covid-19 epidemic has had certain impact on new mall openings and tenant expansions in 2020. However, despite the fact that delayed openings have caused lower new supply observed in this year, the market is still set to welcome more than 450,000 sqm NLA under the supply pipeline during the next 3 years, located mainly in non-CBD areas. Two Vincom projects are scheduled to be opened (Vincom Megamall Ocean Park and Vincom Megamall Smart City), utilizing immediate demand within mega residential projects in the East and West of the city. Besides major local retail developers, international retail groups continued to show stronger interest in the city. Aeon Group is expecting construction approval for its largest project in Vietnam – a shopping mall in the South of Hanoi (Aeon Mall Hoang Mai), following the recent opening of Aeon Mall Ha Dong (opened in Q4 2019). While the West and Midtown area continues to serve as Hanoi’s existing retail cluster, further development of regional malls across the city is expected to create alternative shopping destinations.