CIR Vietnam
The latest CBRE Vietnam Q3 2024 report paints a mixed picture for Ho Chi Minh City’s real estate market. As the city continues to grapple with rising supply and shifting demand, the report highlights key developments across the office, retail, and residential sectors. Notably, the office market has been particularly affected by strong supply growth, while retail and residential sectors exhibit more dynamic trends.
Office Market Under Pressure from Oversupply
The office market in Ho Chi Minh City is witnessing considerable strain due to an influx of new supply that began in 2023 and carried into 2024. This oversupply has led to a significant rise in vacancy rates, which stood at 20.2% by the end of Q3 2024. This trend has particularly impacted the Grade A office sector, with prime locations in the city experiencing stiff competition among landlords. Despite this, rental prices for Grade A offices have remained relatively stable.
Landlords, however, are starting to review and adjust their leasing policies in response to weaker demand signals. This softening demand has prompted businesses to shift towards more cost-effective leasing options, reflected in the steady rental growth in Grade B offices. As companies increasingly seek cost efficiencies, this trend may continue, with Grade B offices becoming a more attractive option for businesses in search of affordable space.
Retail Sector Sees Strong Absorption and Growth
In contrast to the office sector, Ho Chi Minh City’s retail real estate market has shown resilience and significant growth. The CBRE report noted that the city’s retail sector recorded its highest absorption rates in five years, driven by a combination of an expanding consumer base and increasing urbanization. Rental prices for prime retail spaces in the central business district (CBD) grew by 17% year-on-year, while non-CBD areas also experienced notable growth, with rental rates rising by 13%.
The rise of Vietnam’s middle class and strong consumer spending have bolstered demand for quality retail spaces. As international and local brands continue to expand their presence in Vietnam, prime retail locations in Ho Chi Minh City are becoming increasingly sought after. This trend reflects broader economic confidence, positioning the city as a leading retail hub.
Residential Market Faces Supply Constraints and Price Increases
While the retail sector thrives, the residential market in Ho Chi Minh City presents a contrasting dynamic. According to CBRE’s Q3 2024 report, the supply of new condominiums in the city has drastically decreased. Only 127 units were introduced during Q3, marking a significant 96% year-on-year drop. This sharp decline in new supply is largely due to delays in project approvals and rising construction costs, which have tightened the market further.
Despite the limited supply, demand for residential properties has remained robust, pushing up prices in the primary market. The average price for condominiums reached 66 million VND per square meter, representing an 8% increase year-on-year. Meanwhile, prices in the secondary market also climbed by 5% year-on-year, driven by strong demand from both local and foreign investors. As a result, the price gap between Ho Chi Minh City and Hanoi has narrowed, indicating ongoing demand for mid-end and luxury properties across Vietnam.
Commentary from CBRE Vietnam
Commenting on the Q3 2024 market performance, Lawrence Lennon, Director of Capital Markets Services at CBRE Vietnam, expressed cautious optimism. “Reflecting on the Q3 2024 market update from CBRE Vietnam, there’s a sense of cautious optimism in the air. Demand for real estate remains strong, supported by healthy fundamentals. While consumer sentiment has been low, the recent Presidential appointment has helped to improve investor sentiment with a genuine sense of progress.”
Lennon also highlighted key economic indicators supporting the market’s resilience. “We’re seeing GDP growth up to Q3 ’24 at 6.82%, with exports up by 15.4%—especially in the computer and electronics sectors, which have jumped by +20% when compared to 2023. Tourism is also thriving, surpassing 2023 numbers with 12.7 million international arrivals, and FDI has increased by 11.6% year-on-year. Overall, these trends point to a resilient market ready for growth.”
Looking Forward
As the market moves into the final quarter of 2024, the outlook for Ho Chi Minh City’s real estate sector remains cautiously positive. While the office market continues to face challenges due to oversupply, the retail and residential sectors are performing well, driven by robust consumer demand and a growing economy.
The balance of demand and supply across the city’s sectors will be crucial in determining how Ho Chi Minh City’s real estate market evolves. For now, while landlords in the office sector may need to adjust to shifting market conditions, the retail and residential sectors are poised for continued growth as Vietnam’s economy remains on an upward trajectory.
