Hanoi Retail market vacancy rates in shopping centres and prime locations continue to grow, especially in the old quarter where supply has significantly increased. Mr. Le Tuan Binh, Head of Commercial Leasing, Savills Hanoi, provided insights on pricing levels and operating capacity.
For the first time, old quarter landlords have to negotiate lease prices with tenants.
According to the General Statistics Office, retail sales of goods in Hanoi increased 9.9% year on year (YoY) under increasing demand for essentials and rapidly developing e-commerce. However, with imports remaining limited, and pandemic fallout affecting income and purchasing power, sales remained low.
Recent Savills research found approximately half of retail business revenues have fallen by up to -50% during the extended Covid-19 episode. With demand so heavily affected, it has become impossible for companies and retailers to realise existing planning goals.
Landlords making adjustments to support businesses and retailers has seen leasing price pressure ease in recent months. Compared with pre-pandemic levels, the cost of CBD retail space has fallen significantly; some prime locations have reduced rents by up to -40% to retain tenants.
Mr. Le Tuan Binh, Head of Commercial Leasing, commented, “Landlords need to acknowledge two points to align with current demand. First is the rental price. As most old quarter landlords never have had to negotiate prices with tenants, they tended to select whoever bid the highest. However, now we’re seeing proposed pricing that aligns with market reality.
The second point is the need for more flexible leasing. Previously, landlords tended to offer more limited rental options, but have since become far more flexible, sub-dividing premises to provide more smaller-sized options. Lease term conditions and rental price adjustments have become more fluid. Although revenues have declined, they will soon recover post-pandemic”, Mr. Binh said.
Strategic Change helps Shopping Centers and the Office Market Endure
According to Mr. Binh, despite owners being quick to offer tenants lease support, shopping center vacancies are still rising.
Mr. Binh explained: “The first aspect is rental strategy. Retailer business strategies are evolving as many recognize the potential e-commerce has to their business. Physical business premises are no longer the number one priority, so shopping centers need to adjust tenant targets, leasing requirements and areas, to attract the most suitable tenants.
Although most retailers have been affected by the pandemic, Savills research found sales have increased by over 20% in supermarkets. These retailers receive preferential rents compared to others. Needing larger areas, they also drive footfall and by doing that, attract other retailers; supermarket has become a ‘must-have’ anchor-tenant in any shopping complex.
While retail remains deeply affected, the office market remains stable with 95% whole market occupancy and rental prices mildly fluctuating 1-2% quarter on quarter (QoQ) and YoY.
Mr. Binh said: “with leadership businesses tending to have longer-term strategies, Grade A office pricing in the CBD at over 30 USD m2 per month has remained high. Furthermore, with grade A tenants mostly being global companies with risk funds, any rental assistance requests tend to be limited to the short-term.”
Year-End 2020 Scenario
Data from Savills H1/2020 market report shows the pandemic has reshaped commercial leasing and driven new trends in Hanoi. According to Ms. Do Thi Thu Hang, Savills Hanoi Advisory Services Director, “Retail rental prices continue to decrease. Extended uncertainty from Covid-19 has delayed many new project openings. The market is expanding to the Eastern and Western areas. There are still extensive opportunities in e-commerce.
Growth in online shopping driven by the rapid change in consumer behaviours require more innovative customer growth and retention strategies from traditional retailers and landlords. Retail sales research shows recovery follows major impacts such as the global financial crisis. We anticipate the same pattern following effective global containment of Covid-19.”