Developers told to window shop

Knight Frank Vietnam has warned developers to think carefully before buying into shopping centre projects in Ho Chi Minh City.

Nicholas Holt, associate director of market research and advisory services at Knight Frank Vietnam, told VIR that developers needed to put location under the microscope when planning retail developments.

“When carrying out initial feasibility to correctly position the centre and to define the appropriate concept– the developer has to be sure of what the potential of that area is,” he said.

A well-defined concept, Holt noted, would help attract the best tenants and ensure maximum returns.

He said the catchment population should be studied.

Also, income statistics could then be analysed, with an analysis not only of the current situation but also of future trends including what consumer spending potential might be for the centre.

“Further to the analysis of the primary and secondary market for the centre, analysis of existing and future centres that will compete with the development is also essential to correctly position the centre,” he added.

Retailers in prominent locations and paying high rental levels are currently assessing occupancy cost ratios, such as the amount of rent and service charges compared to turnover.

Some of the high rental levels achieved in a number of centres will not be sustainable from a business perspective.

“A very prominent shopping centre in Ho Chi Minh City has had difficulties maintaining the high rents achieved at the opening of the centre,” Holt said.

This was due to lower than expected turnover figures for a number of tenants, and especially for shop units positioned away from the central walkways and with low footfall.

Put simply, said Holt, the turnover was not justifying the rent being paid.

Despite the huge growth in sales value of goods and services in Ho Chi Minh City (a 27.9 per cent increase in 2010 over 2009), the first quarter of this year has seen the retail property market adjust slightly as retailers become more aware of rental levels in relation to turnover.

Average rents in the central business district (CBD) range from $93 to $140 per square metre per month while outside the CBD the range is from $35 to $83 per square metre per month.

Occupancy rates in the first quarter of this year were down slightly on the last quarter of 2010 with average occupancy rates for retail space within the CBD and outside the CBD at approximately 92 per cent and 83 per cent respectively.

According to Knight Frank Vietnam, food and beverage, fashion and electronics retailers were particularly active in the first quarter of 2011.

Subway, the US-based sandwich shop chain has opened its first franchise store in Vietnam in District 1. It is targeting 25 shops in Vietnam by 2015.

BreadTalk, a premium bakery brand from Singapore, recently opened its second boutique bakery in Cao Thang street, District 10. BreadTalk will launch a third bakery in Maximark Cong Hoa in Tan Binh district at the end of the next quarter and plans to set up more than 10 boutique bakeries in Ho Chi Minh City this year.

Meanwhile Nguyen Kim, an electronic appliance distributor opened its new shopping centre in Thu Duc District in January.

Existing supply in the Ho Chi Minh City retail market stands at approximately 670,000 square metres. This includes supermarkets, retail podiums, department stores and shopping centres.

Retail developments slated for Ho Chi Minh City exceed 1.5 million square metres over the next five years. Many well-known foreign retailers including Dominoes Pizza, Bread talk, Guardian Pharmacy, Giant Supermarket, Zara, and GNC will be entering the market this year or in 2012. – VIR

Tags: Vietnam Property market, vietnam real estate market