Savills Vietnam report on Hanoi real estate market Q4/2016

SAVILLS REPORT ON HANOI REAL ESTATE MARKET
Q4/2016

In 2016, GDP growth achieved 6.2% with the real estate industry expanding 4% to a 5-year high.

New annual records were set in foreign-exchange reserve, FDI disbursement and newly established businesses. Real estate ranked 1st in newly established businesses with over 3,100 registered and ranked 2nd in newly registered FDI capital with US$1.5 billion. The total retail sales of goods was more than US$117 billion, up 10% YoY.

Viet Nam recorded the highest ever growth of international arrivals with over 10 million visitors, increasing 26% YoY.

1. Retail: Rents Maintain Downward Trend

In Q4/2016, the total retail stock was approximately 1,200,000 m², up 2% quarter-on-quarter (QoQ) and 10% year-on-year (YoY) due to the entry of two new shopping centres and one retail podium, cumulatively providing approximately 56,000 m².

Ground level rents decreased QoQ and YoY across all retail segments to a four-year low. Average occupancy increased 1.1 percentage points (ppts) QoQ but decreased -3.0 ppts YoY. While shopping centre occupancy decreased -1.3 ppts QoQ, both department store (0.5 ppt) and retail podium (13.9 ppts) occupancy increased.

New entrants performed well while fierce competition forced existing projects to either renovate or close. From 2017 to 2018, new retail supply will be concentrated in the West and Secondary areas.

2. Office: Limited Grade A Vacancy in the West

One project entered the market supplying approximately 9,700 m2. Ha Noi office stock reached 1,640,000 m2, increasing 1% QoQ and 4% YoY. In Q1/2017, two projects will launch, cumulatively supplying approximately 70,000 m2.

The average rent was stable QoQ but increased 1.1% YoY, while the average occupancy increased 1 ppt QoQ and 4 ppts YoY. Grade A occupancy in the Secondary area sharply increased due to landlord incentives. In the West, Grade A far outpaced Grade B with vacancy of just 6 percent.

According to the National Business Registration Portal, in 2016, Ha Noi was the most dynamic commercial centre with over 22,000 newly registered businesses, increasing 19% YoY.

3. Serviced apartment: Increased Occupancy but Lower ARR

In Q4/2016, due to the entry of four new projects, serviced apartment stock reached 4,028 units, up 5% QoQ and 9% YoY.

The average occupancy exceeded 87%, increasing 0.4 ppt both QoQ and YoY. The average room rate (ARR) was down -2.1% QoQ and -2.4% YoY due to sharp Grade B decrease of -4.8% QoQ and -4.5% YoY. Take-up was positive across all grades totalling more than 190 units.

In 2017, three new projects supplying 765 units are expected to come online. From 2018 onwards, six of seven expected projects will enter the market with approximately 800 units.

4. Hotel: Peak Season Increases QoQ Performance

Hotel stock increased 1% QoQ after the re-entry of one 3-star hotel and the withdrawal of another 3-star for renovations but decreased -3% YoY. Sofitel Plaza Ha Noi was officially rebranded Pan Pacific Ha Noi.

The average occupancy was up 8 ppts QoQ due to the peak season but relatively stable YoY. The ARR increased 12% QoQ and 9% YoY. RevPAR increased 27% QoQ and 9% YoY.

Ha Noi recorded 4,000,000 international arrivals in 2016, up 23% YoY and accounting for 40% of arrivals to Viet Nam.

5. Apartments: More Supply at Year-End

In Q4/2016, the total primary stock was 21,670 units, increasing 27% QoQ and 35% YoY. Nineteen freshly launched projects and twenty one newly launched projects supplied 10,280 units, increasing a significant 81% QoQ and 28% YoY.

There were approximately 6,730 sales, increasing 19% QoQ and 5% YoY. The absorption rate decreased -2 ppts QoQ and -9 ppts YoY to 31%, while the average asking price increased 2% QoQ and 1% YoY to US$1,230/m2.

In 2017, approximately 77 projects will enter the market supplying over 50,000 units, much of which will be Grade B and come from Hoang Mai, Thanh Xuan, Tu Liem and Ha Dong.

6. Villa & Townhouse: A Record Selling Quarter

The total stock was approximately 35,000 dwellings, up 4.9% QoQ and 12.8% YoY. Four new projects and the fresh launches of four existing project supplied approximately 600 dwellings, of which villas accounted for 18 percent. Tu Liem, Ha Dong and Long Bien districts were the main suppliers, cumulatively accounting for a 50% supply share.

Sales increased 129% QoQ to 766 units, of which 64% were townhouses. Dominating in sales this quarter were Tu Liem with 24% and Ha Dong with 23 percent. Villa and townhouse sales exceeded the former record set prior to 2011.

In Q1/2017, more than 2,300 dwellings are expected to enter the market, mainly from Vingroup.