We recently sat down with our Managing Director Neil MacGregor to chat about how real estate has performed in 2023, the opportunities investors can capitalise on, and how to navigate potential challenges.
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Neil MacGregor, Managing Director of Savills Viet Nam
How has real estate performed in 2023?
Real estate in Viet Nam has experienced a range of challenges in 2023 because of global economic weakness as well as an array of Vietnam-specific challenges.
The high interest rate environment across the globe has resulted in significant pressure on the global economy and has created a high degree of uncertainty for investors. An environment of high inflation has pressured household spending and combined with high inventory levels, has resulted in a significant drop in manufacturing orders, directly impacting growth in Viet Nam’s key sector.
Ongoing delays in residential project approvals have resulted in a lack of new project launches, which has subsequently impacted sentiment in residential markets. However, underlying demand remains strong, particularly in the owner-occupier segment, and continues to be fuelled by urbanisation, strong demographics, and a real need for housing. Urbanisation in Viet Nam is expected to reach over 50% by 2023 and 70-75% by 2050.
Savills Prime Office Costs Q3/2023 depicts a challenging picture for office markets worldwide with rising rental costs and high vacancy rates. In the US, average availability rates have increased by 90 bps since year-end 2022. Across the EMEA, net effective costs rose by an average of 2.1% in Q3/2023, driven by the flight to prime and the desire for occupiers to take up green-certified office space.
Viet Nam’s office markets have bucked global trends and maintained strong occupancy rates with steady rental growth. Ho Chi Minh City stands out as one of the best office performers across the Asia Pacific; occupancy is high at over 90%, according to Savills Market Report Q3/2023.
Source: Savills Prime Benchmark July 2023
Green credentials have benefited the best office buildings and ensured strong take-up and rental premiums. By 2026, green buildings are expected to account for 80% of Grade A and B supply in HCMC while an additional 68,400 m2 of green office space will be present in Ha Noi. Savills ESG Spotlight Q2/2023 details how buildings with green certifications will increasingly command ‘green premiums’ over ‘brown’ stock. Increasingly, prospective tenants favour green offices, and we are likely to see increased vacancies in buildings without certifications.
Hospitality has been slow to recover, especially in coastal regions. However, hotel performance in Ha Noi and Ho Chi Minh City are back to pre-Covid levels. Hotel stock in Q3/2023 reached 15,641 rooms in Ho Chi Minh City CMC and 10,962 rooms in Ha Noi.
Despite the challenges, the market has shown remarkable resilience and is well-placed to take advantage of more positive policies and economic news.
What are the key advantages or opportunities for investors in real estate? Are there any specific real estate sectors that can deliver favourable returns for investors?
In Viet Nam, there is an imbalance between residential supply and demand in large cities. In Ho Chi Minh City, landed property primary stock hit a ten-year low at 766 dwellings, and Ha Noi primary stock was 754 dwellings. Apartment stock also remained low, at 7,722 in Ho Chi Minh City and 19,808 in Ha Noi.
Investors who can successfully bring residential projects to market are likely to be able to tap into the strong underlying demand, particularly if targeting owner occupiers in the growing middle class. According to McKinsey, half of the Vietnamese population will enter the global middle class by 2035.
Opportunities remain for the office investors and developers. Those who can deliver, or reposition, office buildings with green credentials will be able to attract a rental premium. Notably, 90% of the new supply in HCMC in Q3/2023 was dominated by Grade A projects in Thu Thiem NUA in District 2, namely The METT and The Hallmark. Their attainment of green certifications combined with advantageous locations attracts international tenants from various industries.
What are the primary obstacles or challenges that potential investors might face when considering real estate investments?
Challenges related to bureaucracy around project approvals, particularly the settlement of land use fees remain the most significant. It is our hope and desire that the proposed changes to the Land Law will facilitate faster processes. These changes will hopefully make housing more accessible to those who are in need, whilst generating much-needed revenue.
What measures or initiatives could Viet Nam implement to stimulate real estate investment?
It is crucial to have a long-term master plan for provinces that is closely supervised by the Government. The legal framework must keep pace with the rapid economic development and urbanisation taking place. The local province authorities must be empowered to manage the project approval process. Moreover, expediting the disbursement process for public projects and infrastructure developments is imperative to ensure that the city's growth is sustained.
For more information on real estate investment opportunities in Viet Nam, contact our Investment Team. Our experienced team delivers investment advisory, brokerage, and marketing services at any stage of the property lifecycle. We deliver best-in-class solutions, backed by detailed market knowledge and our global reach. We provide investment analysis and advice on deal structuring, including joint venture and partnering arrangements.