New supply to boost Hanoi retail property market

Hanoi’s retail market is expected to show significant growth potential as new supply enters the market, market research firm Savills said in its latest report.

The company’s Q3/2024 Market Brief indicates that the market will see an influx of 257,280 square meters from five shopping malls and nine retail podiums from 2024 to 2026.

Lotte Mall West Lake Hanoi

Shopping malls will account for 71% of supply, while retail podiums will account for 29%. Major projects include Hinode City Mall in Hanoi's Hai Ba Trung District, Hanoi Center in Ba Dinh District, and Starlake B1CC1 and B1CC2 in Tay Ho District.

The report notes that total supply increased by 2% quarter-on-quarter and 2% year-on-year in Q3, with the addition of one new shopping center and two retail podium projects. Over the past five years, supply has grown at an annual rate of 3%.

As of the third quarter, shopping centers had dominated the market, representing 63% of the total supply at 1.14 million square meters, while retail podiums had accounted for 17% and department stores had made up 3%.

The retail occupancy rate remained stable quarter-on-quarter, but declined one percentage point year-on-year to 85%. Ground floor gross rental decreased by 1% quarter-on-quarter but increased by 6% year-on-year, driven by improved rental rates in retail podiums, which rose by 2% quarter-on-quarter and 9% year-on-year. In central areas, the average rental was VND3.4 million (US$134) per square meter per month.

"Retail spaces in central areas, especially in Hoan Kiem District, continue to command high rental rates. Premium retail spaces in Hoan Kiem have a significant price gap compared to those outside the central area, although these locations are also experiencing rising rentals," said Trinh Huynh Mai, Associate Director of Commercial Leasing at Savills Hanoi.

Hanoi's retail property market currently has strong growth potential due to the positive expansion of the overall retail market, she said.

According to the General Statistics Office, total retail sales of goods and services at current prices were estimated at VND1.6 trillion ($63 million) in Q3, up 1.7% quarter-on-quarter and 8.4% year-on-year.

The city's tourism sector continued its strong growth in Q3, with visitor arrivals in Hanoi up 11.7% year-on-year. In August alone, international travelers were estimated at 373,000, up 19.7% month-on-month and 43.4% year-on-year. In the January-August, international visitors reached more than 2.8 million, a 44% increase on-year.

The rapid recovery of international tourism, coupled with the ability to adjust for inflation, has led to a 6% year-on-year increase in rental rates and increased footfall across the city, said Matthew Powell, Director of Savills Hanoi.

Vietnam's demographic advantages, with a large population and growing consumer demand among young people, are supporting the market, he said, adding that Vietnamese consumers are increasingly inclined to shop locally and trust domestic markets.

Many high-end Vietnamese consumers preferred to buy luxury goods while traveling overseas 10-15 years ago, Matthew said.

Today, they want to experience and own premium products in Vietnam, he said.

This creates a strong incentive for retailers to enter this growing market, said the director.

 Retail podiums show strong performance in Q3

In terms of retail leasing, Savills Hanoi’s associate director Mai reported that retail podiums show a robust performance in Q3, driven by demand both within the buildings and from the surrounding areas.

BRG Diamond Residence

In terms of retail leasing, the Associate Director of Savills Hanoi reported that retail podiums showed a robust performance in Q3, driven by demand both within the buildings and from the surrounding areas. Retail podiums recorded a 13% point increase in occupancy year-on-year. 

Retail podiums recorded a 13-percentage-point increase in occupancy year-on-year, she said.

The total take-up rose by 26,550 square meters, with retail podiums contributing significantly with an additional 24,520 square meters, she added.

New retail podium projects in the third quarter included BRG Diamond Residence and The Rosary, both of which feature retail models anchored by tenants in supermarkets, entertainment, and F&B sectors.

This model caters to the daily needs and entertainment activities of residents, driven by the rapid population growth in the surrounding areas, Mai said.

Meanwhile, shopping centers, particularly those featuring international brands like Lotte, Central Retail, and AEON, maintained solid business performance, she added.

“The revenue-sharing lease model, previously exclusive to department stores like Lotte Center Hanoi and AEON Mall, is increasingly applied to suitable tenants in major shopping centers,” Savills Hanoi representative said.

This revenue-sharing model allows shopping centers to attract more tenants through flexible rental rates, reducing the financial risk for small businesses and new brands.

At the same time, both mall owners and tenants share the risk of lower-than-expected revenues, encouraging collaboration to drive sales. However, the model has the drawback of unpredictable revenue because it depends on tenant performance and requires an efficient revenue management system.