Retail Outlet Leasing Still in Hardship

Last year, trade centres overcame the global economic slowdown successfully. However, economists said this year, despite the economic recovery, the centres are still facing big challenges.

Retail space has remained a bright segment in the realty market over the past time. Meanwhile, offices, restaurants and apartments for hire have become quite with the fall in both rentals and the rate of occupancy.

According to a report from Savills and CBRE, the occupancy rate of trade centres in Hanoi and Ho Chi Minh City is less than 90 per cent. Tran Nhu Trung, Director from research department of Savills said the rate always makes investors satisfactory. Average rental level of trade centres is stably maintained at between US$80-US$199 per sqm per month at nice places like the inner city and US$35-US$45 per sqm per month at trade centres in suburban areas. The highest rental in the heart of Ho Chi Minh City is at US$250 per sqm per month and Hanoi’s is US$150 on the same area.

Foreign firms warming up the retail market

A number of big trade centres are about to become operational this year such as Vincom Center in HCM City or Grand Plaza in Hanoi. CBRE, the managing unit of Vincom Center, said 80 per cent of the centre’s total area of 54,000 sqm has been leased. Up to 75 per cent of Grand Plaza has also been registered, equal to 18,000 sqm and the rate of occupancy is increasing when the centre’s opening day is nearing. Hoang Hong Van, marketing director of Grand Plaza, said rental of the ground floor fluctuate between US$85-US$95/sqm/month and the price decreases for higher floors.

Although not many foreign retail investors have come to Vietnam after the country opened the market under the WTO commitments as pledged earlier, foreign names have quickly entered Vietnam through franchise contracts. According to the Ministry of Industry and Trade, in 2009, 20 foreign brands came to Vietnam through franchise contracts compared to 17 in 2008 and six in 2007. These firm all need to hire space for retail business.

More supply, fiercer pressure

The demand for retail space has still on the sharp rise; therefore, investors do not hesitate to pour their money into building trade centres. CBRE forecast that, in the next three years, the total area of trade centres in Hanoi will increase by five times compared to the current level (at some 510,000 sqm) and by seven times in HCM City (at around 740,000 sqm).

Due to the strong increase in the supply will make trade centres more competitive in attracting renters. Particularly, trade centres in outskirts will face a high risk of vacant areas like Saigon Paragon in HCM City and the Garden in Hanoi. Nathan Cumberlidge, Technical Director of Colliers International Real Estate Company in Hanoi, said the big supply in the five years to come can cause a pressure for renters. Thus, investors should carefully study market trend to lure customers. The fact shows that a trade centre in good location could not attract customers if without suitable design and arrangement.

Trang Tien Plaza is a typical example. Located at the heart of Hanoi city which is one of the most exciting administrative and trade areas in the city, it has not yet gained business success over the past years due to unsuitable arrangement. The centre should be rearranged to draw customers’ attention.

He added that a successful retail project requires a mix of shop system including cinema, supermarket, and entertainment area. More importance is to attract big famous retailers, and then other retailers and customers. The strategy is applied successfully at The Garden. The number of shopping customers at The Garden has increased gradually after the trade name Big C rented a space to open a 3,000sqm supermarket here

Meanwhile, Mark Farquhar, retail service director of Savills advised investors to focus on the consumption trend in future to design suitable trade centres and seek the demand of retailers before working with architects. For example, stores in Vietnam now have an area of 70- 100 sqm each, much smaller than in Singapore, Malaysia and Thailand. Whether this can meet future retailer’s demand?

Tags: vietnam retail industry, Vietnam retail market