Ho Chi Minh City Q4 2012 Report

Market Insights from
CBRE
HCMC Quarterly Report Q4/2012 Review and 2013 Outlook

Presented by:
Dung Duong Senior Manager
CB Richard Ellis (Vietnam) Co., Ltd. Tuesday, January 3, 2012
VIETNAM ECONOMY
2012 BRIGHT SIDE
Y-o-y Growth (%) in 2012
20 15 10 5 0 -5 -10 FDI realisation ODA disbursement Export Import Retail Sales and Services Overseas Remittance Int'l Arrivals
Source: General Statistics Office
CPI ended at 6.8%, better than target of 8%, thanks to the tightening policy.
Governments success in keeping price pressure down opens the door for monetary easing
Base rate unchanged while rediscounting and refinancing rate are cut 1% further. Deposit interest rate cap decreased by 1% to 8% in an attempt to lower lending costs by reducing banks financing costs
2 CBRE RESEARCH & CONSULTING
Trade balance posted a first year of surplus in the last 20 years.
Many economic indicators saw an y-o-y growth of 2% to 18.3% except for FDI realisation.
MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013
VIETNAM ECONOMY
2012 CONCERNING
GDP reached only 5.03%, lower than target of 5.5%. FDI disbursement drop by 5% y-o-y unavoidable in the midst of gloomy economy, both locally and internationally. Bad debts reached VND250 trillion, equal to 8.83 % of total debt (source: SBV) as a result of too high credit growth in 2010. VNIndex saw a downward trend from May to Nov but moved out of the trend in Dec as investors regained confidence on risky assets thanks to releases of better-than-expected CPI, trade balance, interest rates cut and sealed M&A deals between Vietnams largest enterprises and strategic foreign investors.
HCMC OFFICE MARKET

Q4 MAJOR EVENTS
Grand opening of An Phu Plaza
Launched date: 22st Nov, 2012 Developer: An Phu Corporation Offered office space: 10,905 sm GFA At the press time, 50% of office space has been leased out.
Lim Tower, District 1
An Phu Plaza, District 3
Lim Tower is one of few projects that is fast approaching toward completion
At the press time, about 60% total office space has been committed The building is estimated to complete in Q2/2013
HCMC OFFICE MARKET

Q4 HEADLINES
150,000
$24
100,000
$22
The market-wide asking rent rose to US$21.2 psm per month, an increase of 1.5% q-o-q.
50,000
$20
0 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 2012 Q4
$18
Vacant Space
Average Asking Rent Asking Rent
Average Asking Reent US$ psm per month
Net Vacant Space (sm)
As stock has been absorbed gradually, average asking rent in both Grade A and B markets went up slightly.
Vacant Space and Average Asking Rent Grade A & B
200,000
$26
HCMC OFFICE MARKET

Q4 REVIEW
Rent increased softly

Market continued to show the signs of bottoming as expected in the previous quarter. On average, the asking rent across both Grade A and Grade B increased nearly 2% Mature Grade A buildings held firm rents while younger ones started to increase their asking rent as their vacant space becoming limited. Grade B asking rent continued its soft upward trend in Q4; however at a slower increasing pace (by 0.8% q-o-q, much lower than the recorded number of 1.4% q-o-q in Q3), due to new supply in the review quarter.
Vacancy reduced gradually

Average vacancy rate for both Grade A and B slide to 12.7 % in Q4, a drop of 0.6 percentage points q-o-q.
Demand came from new entrants, company expansion and relocation

Pharmaceutical, legal, and oils & gas still enjoyed wealthy budget and played a major role in driving demand for new office spaces. Tendency of integrating offices in different locations into one location (as one anchor tenant) in order to save cost. 6 CBRE RESEARCH & CONSULTING
HCMC OFFICE MARKET

2013 FUTURE SUPPLY
Target Handover
Q1/2013
Q2/2013
President Place D1 Grade A Area: 9,100 sm NLA
Empress Tower D1 Grade B Area: 19,537sm NLA
Times Square D1 Grade A Area: 12,704 sm NLA
Lim Tower D1 Grade A Area: 22,000 sm NLA
Le Meridien D1 Grade A Area: 9,125 sm NLA
HCMC OFFICE MARKET

OUTLOOK
Given new launches of Empress Tower, President Place and Times Square,
average asking rent in either Grade A or Grade B segment will not be able to maintain their upward trend in next few quarters
2013 is still the year of tenants
New supply mostly comes from delayed projects which construction has ben
renewed rather than from newly invested projects. The market will not experience any significant movement in average rental rate as what happened in the period 2008 -2010.
Pharmaceutical, education, legal and oil & gas continue to be the most active groups of tenant in the market.
than lower their rental rate.
To retain the tenant lists, most landlords will provide higher incentives level rather
More tenant-benefits will be considered including longer fit-out period, free/reduce parking fee and more flexible leasing terms and conditions, discount for upfront payment, etc.
HCMC RESIDENTIAL FOR SALE

Q4/2012 MAJOR EVENTS
December 2012 Star Hill (Phase 2) launched in Phu My Hung NUA.
October 2012 Hoang Anh Thanh Binh apartment developed by Hoang Anh Gia Lai launched in District 7.
October 2012 My Phu 3 villa in Phu My Hung NUA officially launched.
HCMC RESIDENTIAL MARKET

CONDOMINIUM SUPPLY
Condominium Launch by Year
20,000 18,000
16,000
14,000 12,000
10,000
8,000 6,000
4,000
2,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: CBRE
Q4 2012 Q3 2012
Q4 /2012: 18.5% q-o-q; 16.1% y-o-y to 893 units; 2012: 72.8% y-o-y to 3,441 units; Mid-end segment: 57.8% of new launches in Q4; Others launches from already launched projects: Leman CT Plaza, Sunrise City, Investco Babylon, Au Co Tower , Harmona, 27 Truong Chinh, Ehome 3; Stagnant market discouraged new developments; Developers refreshed projects by nominating trading floors for launching/ marketing;
NEW LAUNCH: kept decreasing
Condominium Completed by Year

10,000 8,000 6,000 4,000
2,000
Q4 2012 Q3 2012
Q4/2012: 9.0% q-o-q; 14.1% y-o-y to 2,718 units; Mid-end segment made up the majority 56.7%; Slow construction progress owing to lack of capital;
NEW COMPLETION:
0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: CBRE
2012: 17.2% y-o-y to 9,508 units; Results of completion delays in previous years; Managed to complete to attract buyers.

CONDOMINIUM PRICE
Condominium Asking Price Change (q-o-q change)
Luxury 5% 2% -1% -4%

-7%
High-end
Mid-end
Affordable
PRICES: Decreased across all segments

but NOT DIRECTLY as Q3: Price reductions through promotion, giving voucher, overseas holidays, gold, lending rate support, discount on upfront payment ;
2009
2010
2011
2012
-10%
Source: CBRE
MARKET SENTIMENT
Concerned about partial construction, pushing developers to continue construction;
Unsold Units
Pushing for best pricing causes developers and secondary bulk buyers to slash prices;
Most transactions at mid-end and affordable segments true end-users; In the upper market: Most transactions at branded property good quality, from well-known developers:
Star Hill (P1): over 70%; Star Hill (P2): ~60% out of units launched;
30,000 25,000 20,000 15,000 10,000 5,000 0

2009
Source: CBRE
2010
2011
2012
Currently, HCMC has ~28,000 unsold units


LANDED PROPERTY Q4 REVIEW
Villa & Townhouse Supply by Year
Launched
1000
Completed
Branded property remained a bright spot:

Projects developed by well-known developer and located in prime location still attracted buyers; My Phu 3 launched by Phu My Hung Corp. in early Q4 2012 and sold rate reported over 70%;
800 600 400

200 0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: CBRE
CT Group introduced its golf villas at the CT Sphinx

project in Cu Chi District;
Eastern districts (District 9 and Thu Duc)

Villa & Townhouse Completion by District
continued to be silent; A price reduction of 50%-60% q-o-q reported at a villa project in Thu Duc District;
District 7
District 9
District 2
Thu Duc District

Others
Source: CBRE
No new completion reported; Challenges ahead,

esp. those at less attractive location;

2013 OUTLOOK
Unlikely to have significant turnaround in 2013 despite the Governments efforts to rescue the
property market;
Finance to continue being developers / investors major challenges; Price discounts with conditions to be continuing; Delayed completions and transferring projects expected to continue throughout the year; Expected major condominium launches in 2013:
Delta River Tower District 1 ~182 luxury units The Prince Residence Phu Nhuan District ~233 high-end units Metro Apartment District 2 104 affordable units Ehome 3 (Phase 2) Binh Tan District ~150 affordable units
More competition from developments in neighboring provinces (Binh Duong, Long An) in the
landed property.
HCMC SERVICED APARTMENTS

Q4 MAJOR EVENTS
Fraser Hospitality came to HCMC and introduced its new hotel residence brand - Capri by Fraser @ District 7, HCMC (175 Grade B units), which is ready to move in within January 2013. September 2012 An Phu Plaza (54 Grade B units) opened on Ly Chinh Thang Str., D.3 and its sole agent, CBRE, held the 1st Tenants Night event in early December. November 2012 Q Residence (60 Grade C units) opened on Pasteur Street, D.3.
October 2012 The Ascott Limited won a contract to manage the new Somerset Vista Ho Chi Minh City (100 Grade B units) and Vista Residences (168 units).

Q4 HEADLINE
Average Asking Rent (US$/sm/month) Average Asking Rents(US$/sm/month) Long regarded as
over-priced, recent sharp decline (-9.3% q-o-q and 14.5% y-o-y) in Grade A asking rents secured a gain of 4.6 percentage points q-o-q in its occupancy.
$50
Grade A Vacancy Grade A Rents
Grade B Vacancy Grade B Rents
60%
50%
$40 40%
30%
$30 20%
10%
$20 2007 Source: CBRE 2008 2009 2010 2011 2012 00%

Q4 REVIEW
SUPPLY:
Q4 welcomed two new serviced apartment projects:
An Phu Plaza, District 3 Grade B, 54 units Operating by CBRE Vietnam Q Residence, District 3 Grade C, 60 units Operating by Cushman & Wakefield
To keep established serviced recidences competitive, landlords become more flexible with:
10%-15% discount on asking rents and; Free car parking, daily breakfast or higher utility allowance.
Avg. Asking Rent (US$/sm/month)
$40 $35 $30 Grade A Rents Grade B Rents
ASKING RENTS:
Though Grade B rent increased by 1.0% q-o-q after continuously sliding for three quarters, it must be cautious to say its the markets bottom as Grade A rents saw a sharp decline of 9.3% q-o-q. In line with the perception that serviced apartments are over-priced in HCMC, Grade A rents are revising downwards for 5 quarters in a row;
$25
$20 2007 Source: CBRE 2008 2009 2010 2011 2012

Q4 REVIEW
Vacancy Rate (%)
60% 40%
Grade A Vacancy
Grade B Vacancy
VACANCY: With consecutive decrease of Grade A rents, its vacancy

continued witnessing a larger decrease of 4.6 ppt q-o-q, currently at 10.6%.
20% 0% 2007 2008 2009 2010 2011 2012

Source: CBRE
Grade B vacancy reported high (over 23%), due to the

continued new supply throughout 2012 and the fierce competition from the buy-to-let substitutes.
DEMAND:
Tenants strategies seen in 2012 Manufacturing
companies and international schools have been seen: Intergrating their expat staff into one serviced residence; Buying buy-to-let apartments in bulk for their expat staff instead of separate housing packages;

GUESS PROFILING, CBRE 2012 ENQUIRIES
$1k-2k
41.1%
56.2%
Asian
60-100sm
50.0%
Budget
Sizing
6mth-1yr
79.6%
Serv. Apt.
58.9%
Stay Length
Accommodation

2013 OUTLOOK
Projects kept delaying their grand opening and 2013 will see most-awaited launches, including:
Capri by Fraser @ District 7, HCMC District 7, 175 Grade B units Operating by Fraser Hospitality Somerset Vista Ho Chi Minh City District 2, 100 Grade B units Operating by The Ascott Limited Times Square District 1, 78 Grade A units Developed by Times Square JSC
2012 witnessed major ground-breaking ceremonies, with expected completion beyond 2014:
Saigon Centre, Phase 2 District 1, 200+ Grade A units Developed by Keppel Land To be operated by Sedona Suites The One Ho Chi Minh City District 1 Developed by Bitexco; with its hotel to be operated by Ritz Carlton Saigon South Place Complex District 7 Developed by Mapletree and SCID. Its retail, SC VivoCity Shopping Mall, broke ground in March 2012 and will generate demand and foot falls for next phases
From the traditional core (the CBD) to the decentralised area (District 2 and District 7)
with an emerging expat community; Will place more pressure on the current high vacancy; International players (Fraser Hospitality, The Ascott Limited, Sedona Hotels International, Ritz Carlton, Mapletree, etc.) will bring in world-class experience for a better-shaped market;
TREND OF NEW SUPPLY:
VIETNAM INDUSTRIAL AND LOGISTIC

2012 REVIEW
SKER Historical Land Rates, Key Industrial Parks
$800 $600 $400 $200 $0
Opening of new economic zones

and industrial parks are halted. The existing IPs are under pressure to review its land usage and tenants implementation.
Q1/2007
Q1/2009
Q1/2011
Q4/2011
Q4/2012
To attract more tenants, developers

at less favourable locations have been forced to decrease rent significantly.
Lowest
$300 $200
Highest
NKER Historical Land Rates, Key Industrial Parks
Land rental rate in key industrial

parks remain steady or down slightly compare to 1H2012.
$100
$0 Q1/2007 Q1/2009 Lowest Q1/2011 Highest Q3/2012
Demand derived from expansion of

F&B, FMCG, and Electronics firms such as Pepsi, P&G, Samsung and Nestle.
VIETNAM INDUSTRIAL AND LOGISTIC

2013 OUTLOOK
Both international and local logistic service providers

are in expansion across the country (Schenker, DHL, Kerry, vs Tan Cang Saigon, Vinafco,)
Third tier provinces such as Long An, Bac Giang,

Hung Yen,continue attract traditional sectors like garments, footware.
Electronics, F&B , and FMCG concentrate in second

tier cities such as Binh Duong, Dong Nai,
First tier cities such as HCMC, Hanoi and Danang

capture majority share of the emerging industries including R&D, labs, software development and Business Processing Outsourcing.
HCMC RETAIL
Q4/2012 MAJOR EVENTS
Vincom Center A
Opened on 10 Oct 2012;
Currently operates at 95% committed occupancy
Pandora City
Opened November 2012; Operating at 80% committed occupancy; Located in Tan Phu District The project is unique in the surrounding area.
SC Vivo City
Ground breaking March 2012 Estimate GFA: 72,000 sqm
Estimate NLA : 46,800 sqm

Number of Floors: 1 basement & 5 levels Estimate Completion: 1H 2014
PowerBowl 388 22 CBRE RESEARCH & CONSULTING

HCMC RETAIL
Q4 HEADLINES
CBD Shopping centre
140
25 20
CBD shopping centres average asking rents increased due to Vincom Center As participation .
120
Rental rate (USD/sm/month)
100 80
60
40 20 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
10 5 0
2009
2010 Rental rate
2011 Vacancy rate
2012
* All rents are quoted on NLA, exclusive of VAT and service charges Source: CBRE
Vacancy rate (%)
15
HCMC RETAIL
Q4 REVIEW
New supplies from Vincom Center A (District 1) and Pandora City (Tan Phu District) providing
78,000 sm retail GFA.
Taking advantage of prime location, Vincom Center A has asking rents of the ground and first
floor (USD135/sm/month ) higher than the average of CBD shopping centre (USD122.7/sm/month), leading to an increase of 2.6% q-o-q in CBD shopping centres rental rates. This rent is with a doubt to sustain in coming quarters. The non-CBD shopping centres rents increased slightly 0.8% q-o-q.
Non-CBD department stores rent increased 2.9% q-o-q thanks to the increase in Parkson
Hung Vuong, which has just changed layout and tenant mix last quarter. The deparment store is now more refresh with new branded retailers namely Mango, Mo&Co, DFML, JS. From and the new foodcourt in the sixth floor. CBD department stores rent stayed stable during the quarter.
Vacancy rate in department stores increased substantially in the review quarter, an increase of
5.5% q-o-q to 7.5% due to Parkson Flemington is struggling to attract tenants. Despite increase in total supply, vacancy rate in shopping centres has stayed unchanged q-o-q, which is an evidence to support retail demand with good location and careful project positioning.
In the fourth quarter of 2012, the market saw 57,719 sm GFA of space leased, almost 4 times
larger as compared to that of last quarter. 24 CBRE RESEARCH & CONSULTING
H C M C R E TA I L
DEMAND
More luxury retailers to enter the market as they expand across borders
New entrance: Takashimaya, Aeon, NTUC Fair Price, SC Vivo City, and Payless Continued international-style retailing: fast-food chains set to expand

Subway has announced the plan to open 10 shops in 2013, Burger King has had five stores by the end of 2012, Lotteria and KFC both strive to have 200 shops in the next years, Mc Donald, Starbucks and 7 - Eleven plan to enter Vietnam in 2013.
H C M C R E TA I L
2013 OUTLOOK
Monthly Household Expenditure
F&B, daily necessities ,FMCG

and entertainment will continue driving the market.
Vincom Center A: a strong

evidence to support the need for prime retail space in District 1, HCMC;
With a good location, proper

tenant mix and layout, the market can still absorb new supply.
Source: TNS, The Changing Reality of Retail, Nov-2012
To subscribe, please contact

Q4/2012 released Jan 21, 2013
quarterlyreports@cbrevietnam.com
THANK YOU
2012 CB Richard Ellis (Vietnam) Co., Ltd. This report has been prepared in good faith and with due care by CB Richard Ellis (Vietnam) Co., Ltd. We obtained some of the information above from sources we believe to be reliable. However, we have not verified the accuracy of the information which we obtained from other sources and make no guarantee, warranty or representation about it. We include projections, opinions, assumptions or estimates which are made with careful consideration of factors known to us for example only, and they may not represent current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis.

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Market Insights from

HCMC Quarterly Report Q4/2012 Review and 2013 Outlook

Dung Duong Senior Manager

CB Richard Ellis (Vietnam) Co., Ltd. Tuesday, January 3, 2012

Source: General Statistics Office

2 CBRE RESEARCH & CONSULTING

Trade balance posted a first year of surplus in the last 20 years.

3 CBRE RESEARCH & CONSULTING

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013

HCMC OFFICE MARKET

Lim Tower, District 1

An Phu Plaza, District 3

4 CBRE RESEARCH & CONSULTING

HCMC OFFICE MARKET

Average Asking Rent Asking Rent

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013

Average Asking Reent US$ psm per month

Net Vacant Space (sm)

Vacant Space and Average Asking Rent Grade A & B

HCMC OFFICE MARKET

Rent increased softly

Vacancy reduced gradually

Demand came from new entrants, company expansion and relocation

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013

HCMC OFFICE MARKET

President Place D1 Grade A Area: 9,100 sm NLA

Empress Tower D1 Grade B Area: 19,537sm NLA

Times Square D1 Grade A Area: 12,704 sm NLA

Lim Tower D1 Grade A Area: 22,000 sm NLA

Le Meridien D1 Grade A Area: 9,125 sm NLA

7 CBRE RESEARCH & CONSULTING

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013

HCMC OFFICE MARKET

2013 is still the year of tenants

HCMC RESIDENTIAL FOR SALE

October 2012 My Phu 3 villa in Phu My Hung NUA officially launched.

9 CBRE RESEARCH & CONSULTING

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013

HCMC RESIDENTIAL MARKET

NEW LAUNCH: kept decreasing

Condominium Completed by Year

10 CBRE RESEARCH & CONSULTING

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013

HCMC RESIDENTIAL MARKET

Luxury 5% 2% -1% -4%

PRICES: Decreased across all segments

30,000 25,000 20,000 15,000 10,000 5,000 0

Currently, HCMC has ~28,000 unsold units

11 CBRE RESEARCH & CONSULTING

HCMC RESIDENTIAL MARKET

Branded property remained a bright spot:

800 600 400

CT Group introduced its golf villas at the CT Sphinx

Eastern districts (District 9 and Thu Duc)

Thu Duc District

No new completion reported; Challenges ahead,

12 CBRE RESEARCH & CONSULTING

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013

HCMC RESIDENTIAL MARKET

13 CBRE RESEARCH & CONSULTING

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013

HCMC SERVICED APARTMENTS

14 CBRE RESEARCH & CONSULTING

MARKET INSIGHTS FROM CBREs HCMC QUARTERLY REPORT | JANUARY 2013