Vietnam - Retail nightmare plays out in south

With huge new retail space from projects ready to hit the market and ongoing projects cooling their heels amid a gloomy economy, Ho Chi Minh City retail developers are experiencing sleepless nights finding ways to lure tenants.

With huge new retail space from projects ready to hit the market and shrunken demand amid a gloomy economy, Ho Chi Minh City retail developers are wrestling to lure tenants.

But, there are still vital signs of life in the sector.

Trinh Duc Tuan, deputy director of Pico - which launched Pico Mall in Hanoi’s Dong Da district last year and planned to open a 32,000 square metre new plaza in Ho Chi Minh City’s Tan Binh district in August, summed up the market’s sentiment.

“Ho Chi Minh City’s retail market is in danger of oversupply, but I think it still is better than Hanoi’s retail market which is a disaster zone.”

Tuan said the capital’s new shopping malls such as Savico Megamall, Indochina Plaza, Parkson at Keangnam Hanoi Landmark Tower projects and even its Pico Mall currently faced many difficulties in finding new tenants.

Their occupancy rates seem to remain stable since their opening ceremonies and developers are trying their best to keep the tenants.

“Retailers still have strong expansion plans in Ho Chi Minh City and local residents’ demand for entertainment, food and beverage and related services are not impacted on even in the gloomiest economic circumstances. For new shopping malls there [in Ho Chi Minh City], there is a chance they could fill up,” said Tuan.

But, Tuan said the gloves were off as developers competed for tenants. He said shopping malls planned to be launched this year such as the 13,000sqm Saigon One Galleria, 38,000sqm Vincom Eden, Times Square in District 1 and small-scale retail areas in several condo buildings would all be hunting tenants, with rent cuts and other sweeteners to get tenants onboard.

Fiercely competitive market

According to a CBRE report, shopping centre rents in non-central business districts (non-CBD) of Ho Chi Minh City have been falling within several previous quarters.

Present non-CBD average asking rents ranged around $46.56 per sqm per month in department stores and around $31.12 per sqm per month in shopping centres. The average rents in CBD department stores was $109.35 per sqm per month and $112.08 per sqm per month in CBD shopping centres, a 10.3 per cent fall on-year.

The report showed that the citywide vacancy rate of 16.6 per cent was equivalent to approximately 82,000sqm of gross floor area, which is only one percentage point lower than the previous quarter.

Recent new supply, including The Crescent Mall and The Vista, as well as more established centres such as Vincom Center and Bitexco Financial Tower, accounts for 65 per cent of total vacant space in total of retail developments in Ho Chi Minh City.

Older retail developments are in the same boat.

The Flemington in District 11, after a year struggling to lease out the small retail podium, saw its landlord convert retail to office and education space. Diamond, Parkson and New Zone recently opened narrow doors for lower fashionable brands to decrease the vacant space, while owners of high-rise complexes have had to scale-down retail space to survive these tough times.

Even landlords of street shops in District 1 are suffering. On plush Dong Khoi street, besides more retailers closing, the only movement is the new Sony showroom replacing Brodard/Gloria Jeans Coffee and the soon-to-open Time Square with two units facing the street.

There is still hope

However, there are glimmers of hope. A percentage of the population will continue to shop, while entertainment, food and beverage and related services will woo Vietnamese customers and hyper-supermarkets are always busy.

In 2012’s first quarter, the retail market grew 6.1 per cent, while supermarket sales were up 27 per cent.

For example, new stores such as Baskin Robbins ice-cream and Tous Les Jours on Le Loi street and Domino’s Pizza in the Gemadept Building, Le Thanh Ton street are popular, while Singaporean fashion accessories brand Pedro opened its second shop on Nguyen Trai street in District 1.

Later this year, Parkson Saigon Tourist will expand the ground and first floors of its property in District 1, emphasing the demand for this central location. The development has already secured some high profile brands such as NineWest, Easy Spirit and Crabtree & Evelyn.

Laszlo Fulop, associate director of CBRE Vietnam, said: “There is still a solid demand but lack of availability for quality, purpose built shopping centers in prime locations. The real problem is that the supply - with one or two exceptions - does not meet consumers and consequently retailers’ expectations in terms of location, design and pricing.”

In fact, several experienced shopping centre operators such Takashimaya - which recently announced an agreement for the new phase of Saigon Center on Le Loi street, Mapletree - developer of SC Vivo City and Lotte Department Stores will create desirable destinations. These projects however will only be completed in 2015 and beyond.

In the current circumstances Fulop advised developers to work more closely with tenants to ensure retail operations are sustained with low vacancy rates. Fulop said that in other markets the oversupply or wrong concepts of retail space has resulted in conversion to alternative uses.

“Developers in Vietnam haven’t made drastic steps yet, but the retail component is sometimes an overrated part of mixed used projects.”

VIR

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