By: Mr Matthew Powell, Director Savills Hanoi

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Matthew Powell has been working in the Vietnam real estate market since 2004 and has been based in Hanoi for the majority of that period. Matthew is the Director of the Hanoi office for Savills Vietnam Ltd. with responsibility over all agency and consultancy business lines covering clients from Danang to Northern Vietnam.

Vietnam Retail Property – Adaptation or Extinction

According to AT Kearney’s 2017 Retail Development Index, Vietnam now ranks #6 globally, showing the market’s increasing appeal to retailers. Indeed Vietnam has potential to become the retail business destination of choice: consumer confidence, the rise of e- commerce, trade liberalization, and ongoing infrastructure development and upgrades. And there is plenty of room for development given retail density in Hanoi and Ho Chi Minh City at 0.26 and 0.12 sqm retail/ person respectively, which is way behind regional city peers like Bangkok, Singapore and Kuala Lumpur. There is a market for new retail space supply.

However, retail space is not a quantitative commodity, there is a large qualitative (quality) component as well. And the story in Vietnam is a divergence between Hanoi and HCMC markets. While HCMC is more centralised with 13% of retail space in CBD, with higher rents, stable and high occupancy; Hanoi offers only 2% of retail space in the centre due to limited site availability, high land prices, and height restrictions. There is also a gap in the retail property performance where ground floor rents Hanoi dropped 15.5% YoY and overall occupancy stood at 85% in Q12017 which translates to 186,000sqm of vacant space. Meanwhile, a 60% increase in retail supply is expected in the next few years, putting more pressure on retail space developers in Hanoi.

Viet Nam is also undergoing economic transition, with profound changes in consumer behaviors. These are best reflected in varying expansion rates of different retail categories. Mass fashion, where domestic prices are closest to global averages, achieved the strongest growth. Non-fashion categories such as cinema, entertainment and F&B brands are still growing, as are retailers catering to consumers’ daily needs or through greater product affordability. The luxury and jewelry sectors can expect to see their products sold at 20 to 50 percent above global averages due to taxes and pricing issues, are focusing more on improving performances of existing stores and downsizing: even closing some stores.

Viet Nam retail is a dynamic and competitive market. The key of survival for new retail projects is introducing new designs and facilities and incorporating innovative concepts to attract consumers. There are a few shaping trends that developers and landlords need to be aware of: entertainment attractions, shifting tenant mixes, amusement parks, athleisure, online to offline stores and co- working. They also need to look out for potential threats from quality of project planning and design, quality of shopping centre management and marketing, competition from more nimble shop-house retail operators, informal retail and retail alternatives.

The market here is full of potential and opportunities. And now is a fantastic time for retail, but not quite yet the time for retail property developers to start popping the champagne and rubbing their hands in glee. The key retailer challenge in rising cities is how to grow. Prime areas tend to be safe bets but have a higher cost, while lower cost emerging areas present greater uncertainties Retail landscapes of cities continue to change, and better quality projects displace previous industry leaders.

Retailers looking to expand typically choose to collaborate with a reputable developer and pick prime project space in cities. The winners make sure this happens, and the losers (and there will be) often take a ‘build it and they will come’ attitude. Our recommendation for retail developers and landlords is to combine in depth research and planning with a clear long term vision, and realistically assess how future competition, and rapidly changing retail market conditions will affect the bottom-line. Consumers are changing; tomorrow’s consumers will be digital natives, never having experienced life without smart-phones, facebook, tech convenience etc. The retailers will keep pace so it is crucial for the retail property industry to keep up too.

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