Retail space demand strong in downtown HCM City

The country’s young, newly rich population is seen as a key target of local and international retailers, especially in HCMC where steady economic growth continued in the second quarter of this year. Retail spending was on the increase in the first half of this year, thus having a positive impact on the retail space market.

According to market research firm Savills Vietnam, HCMC consumer demand has remained strong in recent years, and retail growth will be even stronger when the economy fully recovers.

January-May retail sales in HCMC increased 34% from the same period last year, and local consumption patterns indicate there is strong interest in luxury brands, international franchises and domestic goods of high quality. This explains why demand for luxury retail space in the central business districts grew in the second quarter of this year.

The market got four new retail centers – Vincom Center Shopping Mall, Lotte Mart Phu Tho, Maximark Ba Thang Hai, and Co.opMart Phu Tho, which provide the market with some 112,700 square meters of retail space.

As compared with markets in comparable regional cities, the HCMC retail market is still small, with six department stores, 19 shopping centers, six retail podiums, 61 supermarkets and three wholesale markets having a total area of some 602,000 square meters, according to the market research company.

Occupancy in the retail market in the second quarter was 96%, a slight quarter-on-quarter increase of one percentage point. All six department stores reported full occupancy during the review quarter.

“The central business district is still the most desirable area for retail developers and retailers, although suburban areas are becoming increasingly attractive,” Savills says.

In a recent quarterly report featuring the local property market, CB Richard Ellis Vietnam (CBRE) said that the retail market became a tale of the Vincom Center in the second quarter, as the development set a new precedent for the central business districts.

With an extra 57,640 square meters of gross floor space being added to the market, the aggregate retail area in the central business districts increased by 39.5%.

The company says the arrival of this new development enabled a number of retailers who had been looking for space to enter the Vietnamese market for the first time; these included Just Cavalli and Jimmy Choo.

According to CBRE, fashion, lifestyle and food and beverage retailers continued to dominate leasing activity with 46,250 quarter meters of retail new absorption in total.

Average retail rents in the central business districts were around US$121 per square meter per month, increasing from US$100 in the first quarter. This was boosted by the rents achieved at Vincom Center ranging between US$115-231 per square meter per month. Meanwhile, rental rates outside the central business districts fell by 3.3 percentage points to US$46 per square meter per month in the period under review. Given the increase seen in the first quarter of 2010 this shows that there is some fluctuation within the non-central business district market and that ultimately retailers are retaining their preference for central business district locations.

“HCMC, and Vietnam as a whole, continue to see dramatic increases in retail spending and as such retailers are keen to compete for the best locations in order to maximize their exposure,” Marc Townsend, managing director of CBRE, says.

He adds competition for space that has been evident over the past twelve months was recognized with the release of Vincom Center in the second quarter of the year.

CBRE projects demand for retail space remains high, especially in prime locations in the central business districts. Existing retailers are also keen to expand their current portfolio while other tenants are looking for flagship sites within the central business district area. District 2 and 7 will soon welcome new retail components that form part of residential developments.

According to Savills, some 100,000 square meters of new supply are expected to enter the market this year. From 2012 onward, more than 429,000 square meters of new retail space is expected to enter the market upon completion of some major projects.

Tags: Vietnam retail market, Vietnam retail spaces