Market Research. Presented to VINCOM JSC. FINAL REPORT March 25, 2012

Transcription

1 Market Research on the Real Estate Market in Ho Chi Minh City and Hanoi focused on the Office, Residential, Retail and Hotel sectors, Vietnam Presented to 11 Floor, Tower B, Vincom City Towers, 191 Ba Trieu Street, Hai Ba Trung District, Hanoi, Vietnam All information in this report is the most complete and recent information available, unless otherwise noted. FINAL REPORT March 25, 2012 Ho Chi Minh City Unit 1201, Melinh Point Tower 2 Ngo Duc Ke, District 1 T: (848) F: (848) Hanoi 6th Floor, BIDV Tower 194 Tran Quang Khai Street, Hoan Kiem District T: (844) F: (844) Da Nang 5th Floor, Indochina Riverside Towers 74 Bach Dang, Hai Chau District T: (845) F: (845) A-1

2 CBRE VIETNAM RESEARCH & CONSULTING Contents. TABLE OF CONTENTS ECONOMIC OVERVIEW OVERVIEW OF VIETNAM COUNTRY OVERVIEW POPULATION ECONOMIC OVERVIEW RECENT ECONOMIC PERFORMANCE ANALYSIS OF THE ECONOMIC CRISIS ON VIETNAM S ECONOMY FOREIGN REMITTANCES ECONOMIC IMPACTS ON THE PROPERTY MARKET MARKET OVERVIEW OF THE REAL ESTATE SECTOR IN VIETNAM KEY REAL ESTATE DEMAND DRIVERS INCOME AND EXPENDITURE INCOME PER CAPITA MORTGAGES NEW CAR SALES RETAIL SALES WORK PERMITS COMPARATIVE STATISTICS IN KEY ASIAN MARKETS RESIDENTIAL SALE PROCESS TARGET MARKET AND CUSTOMER PREFERENCE RETAIL ECONOMIC NEEDS TEST MAJOR PLAYERS IN VIETNAM REAL ESTATE HANOI REAL ESTATE MARKET HANOI OVERVIEW OFFICE MARKET STUDY MARKET OVERVIEW EXISTING SUPPLY DEMAND ANALYSIS RENTAL RATE VACANCY RATE FUTURE SUPPLY MARKET OUTLOOK RETAIL MARKET STUDY MARKET OVERVIEW EXISTING SUPPLY DEMAND ANALYSIS RENTAL RATE VACANCY RATE 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. A-2

3 CBRE VIETNAM RESEARCH & CONSULTING Contents FUTURE SUPPLY MARKET OUTLOOK RESIDENTIAL CONDOMINIUM FOR SALE MARKET STUDY MARKET OVERVIEW EXISTING SUPPLY DEMAND ANALYSIS SELLING PRICE BUY-TO-LET RENTS FUTURE SUPPLY MARKET OUTLOOK LANDED PROPERTY MARKET STUDY EXISTING SUPPLY PRICE FUTURE SUPPLY HCMC REAL ESTATE MARKET HO CHI MINH CITY OVERVIEW OFFICE MARKET STUDY MARKET OVERVIEW EXISTING SUPPLY DEMAND ANALYSIS RENTAL RATE VACANCY RATE FUTURE SUPPLY MARKET OUTLOOK RETAIL MARKET STUDY MARKET OVERVIEW EXISTING SUPPLY DEMAND ANALYSIS RENTAL RATE VACANCY RATE FUTURE SUPPLY MARKET OUTLOOK RESIDENTIAL CONDOMINIUM FOR SALE MARKET STUDY MARKET OVERVIEW EXISTING SUPPLY DEMAND ANALYSIS SELLING PRICE BUY-TO-LET RENTS 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. A-3

4 CBRE VIETNAM RESEARCH & CONSULTING Contents FUTURE SUPPLY MARKET OUTLOOK LANDED PROPERTY MARKET STUDY EXISTING SUPPLY PRICE FUTURE SUPPLY HO CHI MINH CITY FIVE-STAR HOTEL MARKET STUDY MARKET OVERVIEW EXISTING SUPPLY LOCATION NUMBER OF HOTELS NUMBER OF ROOMS DEMAND ANALYSIS AVERAGE DAILY RATES (ADR) AVERAGE OCCUPANCY RATES FUTURE SUPPLY MARKET OUTLOOK LIST OF TABLES Table 1.1 Key Social-Economic Indicators... 4 Table 4.1 Office, Existing Grade A Supply, Hanoi Table 4.2 Office, Existing Grade B Supply, Hanoi Table 5.1 Department Stores in Hanoi Table 5.2 Shopping Centres in Hanoi Table 5.3 Retail Lobbies in Hanoi Table 5.4 List of Retail Projects Under Construction/ On Hold Table 6.1 Condominium for sale, New Launch Supply, Hanoi Table 6.2 Condominium for sale, Secondary Asking Price, Hanoi (US$ psm) Table 6.3 Mortgage Loan Statistics A Surveyed Commercial Bank Table 10.1 List of Existing Department Stores in HCMC Table 10.3 Average Vacancy Rate Across Grades Table 10.4 HCMC Future Supply by Location Table 10.5 List of Some Major Future Supply Table 11.1 Condominium for Sale, Market Snapshot, HCMC Market, Q4/ Table star Hotels, Market Performance Index by Year, HCMC Table star Hotels, Future Supply, HCMC 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. A-4

5 CBRE VIETNAM RESEARCH & CONSULTING Contents. LIST OF FIGURES Figure 1.1 Vietnam at a Glance... 1 Figure 1.2 Age Distribution of the Population of Vietnam... 2 Figure 1.3 Overseas Remittances, Vietnam... 5 Figure 2.1 Monthly Average Income Per Capita, Hanoi and HCMC... 6 Figure 2.2 Monthly Expenditure Per Capita, Vietnam... 7 Figure 2.3 Annual Income per Capita, Vietnam and HCMC... 7 Figure 2.4 New car sales, Vietnam... 8 Figure 2.5 Retail and services turnover, Vietnam... 9 Figure 2.6 Work permits issued to foreigners, HCMC... 9 Figure 2.7 Grade A Office Rents, Key Asian Markets, Q Figure 2.8 Prime Retail Rents, Key Asian Markets, Q Figure 2.9 Luxury Residential Capital Values and Rents, Key Asian Cities, Q Figure 2.10 Hotel Average Daily Rate, Key Asian Cities, 1H Figure 3.1 Hanoi Overview Figure 4.1 Office, Existing Supply by Grade, Hanoi Figure 4.2 Office, Grade A & Grade B Net Absorption and Vacancy Rate, Hanoi Figure 4.3 Office, Asking Rents by Grade, Hanoi Figure 4.4 Office, Vacancy Rate by Grade, Hanoi Figure 4.5 Office, Future Supply by Grade, Hanoi Figure 5.1 Retail Clusters in Hanoi Figure 5.2 Existing Supply by Type Figure 5.3 Total Supply (sm NLA) Figure 5.4 Asking Rents by Location (US$/sm/month) Figure 5.5 Asking Rents by Type (US$/sm/month) Figure 5.6 Vacancy Rate by Location Figure 5.7 Vacancy Rate by Type Figure 5.8 Future supply by Status Figure 6.1 Major Condominium-For-Sale Clusters Figure 6.2 Condominium for sale, New Launch Supply, Hanoi Figure 6.3 Condominium for sale, New Launch and Completion Supply, Hanoi Figure 6.4 Condominium for sale, Secondary Asking Price, Hanoi Figure 6.5 Condominium for Sale, Future Launch and Completion Supply, Hanoi Figure 7.1 Yearly Completion (Units) Figure 7.2 Existing Supply by District by End of Figure 7.3 Supply by Development Progress by End of Figure 7.4 Future Supply by Year and Current Stage (Units) Figure 8.1 Central HCMC Figure 9.1 Existing Supply by Grade, HCMC, Figure 9.2 Net Absorption and Vacancy Rate, Grade A & B Office, HCMC, Figure 9.3 Average Asking Rent, Grade A & B Office, HCMC, Figure 9.4 Net Leasable Area and Vacancy Rate, Grade A & B Office, HCMC, Figure 9.5 Future Supply by Grade, HCMC, Figure 10.1 HCMC Retail Market Share Figure 10.2 HCMC Retail Supply and Vacancy Rate Figure 10.4 HCMC Retail Average Rents in the CBD by Retail Format Figure 10.5 HCMC Retail Average Rents outside the CBD by Retail Format Figure 11.1 Condominium Existing Supply by Completions, (units), HCMC Market Figure 11.2 Condominium Secondary Asking Price (US$/sm), HCMC Market Figure 11.3 Condominium Primary Asking Price (US$/sm), HCMC Market Figure 11.4 Forecasted Completions (units), HCMC Market Figure 12.1 Villa/Townhouse Existing Supply by Launches, (units), HCMC Market Figure 12.2 Villa/Townhouse Existing Supply by Completions, (units), HCMC Market 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. A-5

6 CBRE VIETNAM RESEARCH & CONSULTING Contents. Figure 12.3 Villa/Townhouse Secondary Asking Price, (US$/sm), HCMC Market Figure star Hotels, Room Supply by District, HCMC Figure 13.2 International Arrivals to HCMC and Vietnam by Year Figure star Hotels, Occupancy Rate and ADR by Year, HCMC 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. A-6

7 Economic Overview ECONOMIC OVERVIEW 1. OVERVIEW OF VIETNAM 1.1. COUNTRY OVERVIEW Figure 1.1 Vietnam at a Glance POPULATION: million (2011) AREA: 331,211 square kilometres MAJOR CITIES (population 2010, millions) HCMC: 7.4 Hanoi: 6.6 Hai Phong: 1.9 Can Tho: 1.2 Da Nang: 0.9 Vietnam is located in Southeast Asia and is bordered by China to the north, Laos and Cambodia to the west and the South China Sea and Pacific Ocean to the south and east. Administratively, Vietnam is divided into 64 provinces and municipalities. The country had a population of approximately million in Ho Chi Minh City (HCMC), formerly known as Saigon, is the largest city in Vietnam (population 7.6 million in 2011) and the country s financial centre. Other major cities include the capital Hanoi (6.56 million), Hai Phong (1.86 million), Can Tho (1.19 million) and Da Nang (890,000). PAGE 1 A-7

8 Economic Overview Vietnam was admitted to the World Trade Organisation (WTO) in 2007 and is also a member of the United Nations, the Association of South East Asian Nations (ASEAN), the ASEAN Regional Forum, the Asia-Europe Meeting and the Asia-Pacific Economic Cooperation forum POPULATION The majority of the Vietnamese population still lives in rural areas, but urbanisation has accelerated since the introduction of economic reforms in 1986, with people seeking greater economic opportunities in cities. As of April 2010, approximately 30% of the population lives in cities. Vietnam s population is relatively young. According to the 2009 Population and Housing Census by the General Office for Population and Family Planning, 43.8% of the population is between years old and 68.8% of the population is under the age of 39. This has positive implications for the economy, as both the labour force and consumption will continue to expand in coming decades. This is in contrast to a number of other Asian countries, notably Japan and Korea, which face a declining workforce and aging population. Vietnam is in a position to benefit from these demographics, with a majority of the population being working age and a small dependent population. Figure 1.2 Age Distribution of the Population of Vietnam Male 2009 Male 2020 (Forecast) Female 2009 Female 2020 (Forecast) Millions Note: At the time of publication the 2009 Population and Housing Census is the most current information available. Source: General Office for Population and Family Planning 1.3. ECONOMIC OVERVIEW In 1986, the Vietnamese government initiated a comprehensive series of economic reforms termed Doi Moi ( opening up ). This economic and political reform opened Vietnam to global trade by facilitating the transition from a bureaucratic, subsidised and centrally planned economy to a socialist-oriented market economy. In the more than 20 years since the implementation of the Doi Moi reforms, Vietnam has enjoyed strong economic growth and a significant improvement in living standards, recording an average annual GDP growth rate of approximately 7.3% from 2000 to In January 2007 Vietnam was admitted to the WTO, making commitments to, among other things, reduce tariffs, progressively open domestic markets to international participants, abolish preferential policies for domestic companies, effectively protect intellectual property and abolish export quotas and dual prices. The impact of these events was evident in 2007 and 2008, as FDI reached a record US$21.3 billion and US$71.7 billion respectively. Much of this investment flowed into the property sector. In 2008, FDI in property was approximately US$23.4 billion, improving from US$6.1 billion in 2007, according to the General Statistics Office. PAGE 2 A-8

9 Economic Overview While registered FDI has dropped significantly since the US$72 billion recorded in 2008, implemented FDI has been more consistent. Implemented FDI peaked in 2008 at US$12 billion, and dipped 16.6% y-o-y to US$10 billion in This recovered to US$11 billion both in 2010 and RECENT ECONOMIC PERFORMANCE Due to the effects of the economic downturn in the second half of 2008, Vietnam saw slow growth in the first quarter of The GDP growth rate in this period increased slightly by 3.1% y-o-y, the lowest growth rate since Economic growth rebounded considerably starting in the third quarter of With y-o-y GDP growth of 5.3%, Vietnam was ranked as having the third fastest economic recovery in 2009, according to the EIU. To support exports and stabilise the foreign exchange market the State Bank of Vietnam (SBV) devalued the dong by 2.1% on August 18, This was the second devaluation in In October 2010 the Government implemented price controls of essential commodities to prevent rapidly escalating prices, which supports the policy of balancing growth with stability while keeping inflation in check. Amid the steep increase in the gold price and high USD/VND exchange rate in the open market, the SBV promised to sell US Dollars to banks and also issued new licences allowing select enterprises to import gold. At the same time, the SBV increased the base, refinancing and discount interest rates by 1% on November 5, attempting to rein in inflation. Accordingly, the current base interest rate is 9% per year. Towards the end of 2010, the markets witnessed a strong demand for US dollars, a dong devaluation and rising interest rates. Vietnam s credit rating was downgraded by Fitch in July, 2010, Moody s Investors Service on December 15, 2010, and Standard & Poor s Ratings Services on December 23, 2010, raising concerns for some investors. However, there was little reaction in the markets because the reasons for these downgrades were similar and well known by the public. Vietnam has persistently seen a trade deficit, relatively high inflation, a weak currency and high interest rates. In each case, the markets did not move significantly as most of these risks are already priced in. The quarterly GDP growth rate was positive in every quarter in 2010, when measured on a y-o-y basis. Key factors for the economic expansion were the continued growth of retail sales and a steady improvement in construction and industrial production driven by the Government s stimulus measures. Vietnam s economy showed a GDP growth rate of 7.2% y-o-y in the third quarter of 2010 and 7.3% y-o-y in the fourth quarter of Consequently, Vietnam s economy achieved a real GDP growth rate of 6.8% y-o-y in 2010, 0.3 percentage points higher than the Government s target. This progressive advancement was again driven by rising domestic consumption, industrial output and the construction sector. Analysts predict that this robust domestic demand will drive Vietnam s economy to grow at a faster rate in 2011 compared to that in Accordingly, in 2011 Vietnam is expected to see y-o-y GDP growth of 7.0% (ADB Asia Economic Monitor), 7.2% (Standard Chartered Bank), 7.5% (HSBC) and 7.0% 7.5% (the Vietnamese Government). A continuing weak global economy resulted in a slowdown in FDI inflows to Vietnam in The total committed FDI in 2010 (including new FDI and FDI increases in existing projects) was down 17.8% y-o-y to US$18.60 billion. However, it should be noted that the implemented FDI increased by 10% y-o-y to US$11 billion of FDI in the mentioned period. The property sector unexpectedly surpassed the processing and manufacturing sector, hotel and restaurant sector and the sector for distribution and production of gas, electricity and water. In 2010, with US$6.84 billion in committed FDI, the property sector attracted the most FDI of all sectors. This is due mainly to a US$4 billion tourism project in Quang Nam Province. Prior to this jump, the property sector attracted the third most FDI of all the sectors was a tough year with inflationary pressures constraining the growth of several key economic indicators. GDP growth dropped slightly below the Government s target of 6% y-o-y to 5.89% y-o-y, however, it is noted that the Government s initial targets both overestimated growth and underestimated inflation. The 7.0% - 7.5% y-o-y growth and 15% y-o-y inflation set at the end of 2010 were not achieved. As a result of understating risks and capability, the benchmarks were again readjusted to 6% y-o-y growth and 17% y-o-y inflation in second half of Growth is predicted to improve slightly in 2012 with projected figures of around 6.1% - 6.5%. PAGE 3 A-9

10 Economic Overview Towards the end of 2011, the Government achieved some success in maintaining growth while simultaneously controlling inflation. The Government issued a number of responses to the rising inflation in the first half of 2011, and the intervention of a monetary tightening policy successfully reduced inflation, particularly during the second half of the year. Inflation at the year s end dropped below the target benchmark of 20%, which analysts consider unsustainable. Inflation in December, 2011, ended at 18.13% y-o-y, with average inflation for the full year at 18.58% y-o-y. The continued economic growth of Vietnam has been attributed as the reason behind the high inflation during The Government experienced a hard year attempting to curb rising costs, to the end of the year inflation was slowing on a m-o-m basis. The highest inflation was seen in food and food stuffs, which rose 26.49% y-o-y in Although the mission to bring inflation below 15%, as stated in the first quarter, was not achieved, the Government successfully reduced the increasing rate of inflation in the second half of the year ANALYSIS OF THE ECONOMIC CRISIS ON VIETNAM S ECONOMY As the economy overheated in 2007, monetary policy was significantly tightened by raising interest rates three times in the first half of 2008, increasing reserve requirements for financial institutions and requiring state-owned banks to buy government bonds, all in an attempt to rein in inflation. The Government s policies had some effect, as inflation on a m-o-m basis started to level off in October With the onset of the global economic crisis in the second half of 2008, real GDP growth rates increased by 6.2% y- o-y in 2008, compared to 8.5% in Vietnam continued to experience slow growth in the first quarter of 2009 with the GDP growth rate in this period increasing marginally by 3.1% y-o-y, the lowest growth since The most noticeable impacts of the economic crisis were a reduction in exports and a significant decline in foreign direct investment ended with moderate GDP growth of 5.3% y-o-y. Table 1.1 Key Social-Economic Indicators p 2012f Population (mil) Population growth rate (%) Unemployment rate (%) N/A N/A N/A 2.8 Annual Income per capita (US$) N/A 369 N/A 474 N/A 703 N/A N/A N/A N/A Nominal GDP (US$ bil) N/A Private consump. (% of GDP) N/A N/A N/A State consumption (% of GDP) N/A N/A N/A GDP Growth rate (%) GDP per Capita (US$) ,024 1,074 1,160 1,362 N/A FDI (Committed, US$ bil) FDI (Implemented, US$ bil) N/A ODA (Commitment) (US$ bil) N/A ODA (Disbursement) (US$ bil) N/A Overseas remittances (US$ bil) N/A Exports (US$ bil.) PAGE 4 A-10

11 Economic Overview p 2012f Imports (US$ bil.) CPI % y-o-y, e-o-p N/A CPI % y-o-y, average Exchange rate (e-o-p, USD/VND)* 15,608 15,739 15,875 16,101 16,114 16,977 17,941 18,932 20,828 N/A p = preliminary, f = forecast, e-o-p = end of period * Historic exchange rate recorded by State Bank of Vietnam; Official Development Assistance (ODA) Annual Income per capita is only surveyed every other year. The next report is expected to be released in mid Source: Vietnamese General Statistics Office FOREIGN REMITTANCES Figure 1.3 Overseas Remittances, Vietnam Overseas Remittances (US$ Billions) p Source: Vietnamese General Statistics Office The SBV announced that overseas remittances in 2010 reached approximately US$8 billion, a figure that surpassed earlier forecasts of US$6 billion. Overseas remittances, along with FDI inflows, help to stabilise the local foreign exchange market by strengthening the supply of foreign currency and financing the widening trade deficit. Although it is difficult to determine the specific use of remittances, remittances contribute to economic development like any external income source. Additionally, there is a relationship between overseas remittances and the property market. Following the 2006 Housing Law that permitted Viet Kieu (overseas Vietnamese) to purchase property, Viet Kieu have invested in real estate and the stock market. Recently, the Government has further supported the integration of Viet Kieu into society by approving dual-nationality. This has had a positive impact on the residential property market as overseas Vietnamese can now own property on an equal footing with resident citizens. In 2011, Vietnam remained 16th in the list of nations receiving overseas remittances. Overseas remittance in Vietnam reached US$9 billion in 2011, up by nearly US$1 billion compared to PAGE 5 A-11

12 Economic Overview ECONOMIC IMPACTS ON THE PROPERTY MARKET The tightening of credit policies combined with slower growth in 2008 had multiple effects on the property market. There was a general reduction in demand from both the commercial and residential sectors as buyers had more challenges obtaining credit and developers had more challenges financing their projects. The reduction in demand reduced sale values and rents and both companies and residential purchasers were more averse to risk. The improving economy will create growth for numerous Vietnamese companies and increase opportunities in the medium to long term. As companies expand, demand for office space will increase, especially for high quality office space. The young population (approximately 67% under the age of 40), low labour costs and improving business environment will continue to make Vietnam an attractive destination for foreign property investors. In addition, Vietnam continues to integrate itself into global economic markets and is consciously using diplomatic ties to improve its image as an international business and trade location, which is expected to boost demand for office space. This is expected to help increase FDI into the country and fuel export demand. At present, agriculture, manufacturing, real estate (department stores and shopping centres, hotels, condominium and villa projects) and technology are key areas for investment. Furthermore, Vietnam s increasing income per capita leaves opportunity for further retail and residential growth, especially in HCMC. 2. MARKET OVERVIEW OF THE REAL ESTATE SECTOR IN VIETNAM 2.1. KEY REAL ESTATE DEMAND DRIVERS INCOME AND EXPENDITURE Growth in personal income is an important driver of demand for retail real estate. According to the General Statistics Office, monthly average income per capita in Hanoi and HCMC posted strong growth (average of 30%-36% per year) in the past six years. In 2010, monthly average income per capita in Hanoi was US$106 while that in HCMC was US$145 per person per month. Figure 2.1 Monthly Average Income Per Capita, Hanoi and HCMC Monthly income per capita (US$) Hanoi HCMC Note: The survey is released every two years by the General Statistics Office Source: Vietnamese General Statistics Office Along with increasing income, monthly average expenditure per person in Hanoi and HCMC has grown from US$47 in 2008 to US$64 in 2010, an increase of 37%, according to the General Statistics Office. PAGE 6 A-12

13 Economic Overview Figure 2.2 Monthly Expenditure Per Capita, Vietnam Monthly expenditure per capita (US$) $70 $60 $50 $40 $30 $20 $10 $ Note: The survey is released every two years by the General Statistics Office Source: Vietnamese General Statistics Office INCOME PER CAPITA Figure 2.3 Annual Income per Capita, Vietnam and HCMC 2,000 1,800 1,600 1,400 1,200 1, HCMC Vietnam Note: The exchange rate used for per capita income is VND18,932/US$1. The survey is released every two years by the Vietnamese General Statistics Office. Source: Vietnamese General Statistics Office Data relating to personal income is limited. Vietnamese people are reluctant to declare their personal income as much of the economy is cash-based and therefore falls outside the tax scheme. CBRE and leading experts believe that actual personal income is greater than what the available data suggests. The limited information available shows two key characteristics. First, it is evident that in both Vietnam and HCMC personal annual income is increasing dramatically. Personal income growth is not expected to decrease in the future due to Vietnam s developing economy. Second, HCMC has a much higher annual income than the country as a whole, as HCMC is the country s centre of commerce and finance. It is expected that this trend will also continue. PAGE 7 A-13

14 Economic Overview MORTGAGES Before March, 2012, the maximum lending rate was capped at 1.5 times the base rate. With the base rate at 8% per year, the maximum lending rate imposed by the SBV on the commercial banks was 12% per year. With deposit rates at approximately 10.5% per year, this left a very small margin for the commercial banks and hence they were very reluctant to lend. However, the average consumer lending rate increased to 18% per year after the removal of the lending rate cap for medium and long-term loans in March 2010 and for short-term loans in April 2010 by the SBV. Given the increasing rates on loans, the SBV asked all banks to lower the interest rates and average consumer lending interest rates at commercial banks decreased accordingly to 13.5%-14.5% as of October In response to rising inflation, steep increases in gold prices and the increasing pressure on the USD/VND exchange rate since the third quarter of 2010, the SBV raised the base interest rate from 8% to 9% on November 5, Deposit and lending rates increased shortly thereafter. The VND deposit rates hit 14% - 16% per year at some commercial and joint stock banks and the lending rate at one point rose to 19%. Given the accelerating interest rates on loans and deposits, the SBV and the Government asked all banks to lower their interest rates. To support banks while they cut their rates, the SBV extended the deadline to raise the registered capital of VND3,000 billion to 2011 and the Vietnam Banks Association (VNBA) increased the maximum deposit interest rate to 14% per year from 12% per year. Accordingly, the deposit rates ranged from 12%-14% per year and lending rates ranged from 16%-17%. However, home loan rates remained much higher, approximately 19%-20% per year, depending on individual terms and the borrower s profile. Although increased interest rates resulted in enterprises incurring higher capital costs, they were deemed necessary for the Vietnamese economy to rein in inflation and reduce pressure on the dong to devalue in the short to medium term NEW CAR SALES Alternative means of consumption are a reasonable proxy for the growth in personal and household wealth. For example, the following chart shows the trend in new car sales in Vietnam. While the residential property market has seen a slowdown in transactions, after peaking in 2009, new car sales dropped off only slightly in 2010 and Figure 2.4 New car sales, Vietnam 120, ,000 Car Sales (unit) 80,000 60,000 40,000 20, Source: Vietnam Automobile Manufacturers' Association (VAMA) PAGE 8 A-14

15 Economic Overview RETAIL SALES Figure 2.5 2,400 2,100 Turnover (VND Trillions) 1,800 1,500 1, Retail and services turnover, Vietnam p Growth Rate (%) Retails and Services Turnover Retails and Services Turnover Growth Source: Vietnamese General Statistics Office The retail sector has been one of the fastest developing sectors in Vietnam since the economic reforms of the late 1980s. The radical change in this sector originates from the transition to a market economy combined with the rapid industrialisation and modernisation of the country. Despite the global economic crisis, the real rate of growth of Vietnam retail and services turnover increased from 11% y-o-y in 2009 to 14% y-o-y in Retail sales are expected to remain robust as the Vietnamese economy continues to rebound and consumers regain confidence. Stable exchange rates, job security and wage increases are encouraging people to spend more money than in the past. Buoyant retail sales will continue to drive demand for retail space in Vietnam, especially within the economic hubs of HCMC and Hanoi. Retail and services turnover demonstrated a slow inflation adjusted growth rate of 4.7% y-o-y in This sector performed better in 2010, registering a growth rate of 14% y-o-y WORK PERMITS Figure 2.6 Work permits issued to foreigners, HCMC Existing Work Permit New Work Permit H-2011 Note: 1H-2011 is the most current information available. From 2008 onwards, only the number of new permits issued is available including both newly granted and re-issued permits. The number of work permits issued is difficult to track countrywide, but information from HCMC is available. When analysing the number of work permits granted to foreigners in HCMC, the amount issued in 2010 increased by 150.5% compared to the number issued in This figure includes both newly granted and re-issued permits. Analysts believe that the increase is a result of an increase in the number of expatriates working in the city and PAGE 9 A-15

16 Economic Overview increasing enforcement of the existing work permit regulations. The increased enforcement of the existing regulations demonstrates the government s commitment to increase the transparency and efficiency of the labour market and to continually widen the tax base COMPARATIVE STATISTICS IN KEY ASIAN MARKETS CBRE Research Asia provides comparative rental rates for the office, retail and residential sectors through its Asia MarketView publication. The most recent information available is from the fourth quarter of Hotel average daily rates are sourced from CBRE Hotels and STR Global, July OFFICE Demand for office space in Asia s leading commercial centres continued to grow as domestic and multinational corporations displayed a healthy appetite for quality office space for both new business start-ups and expansion on the back of sustained regional economic growth. Figure 2.7 Grade A Office Rents, Key Asian Markets, Q $200 $180 $160 Rents (US$/psm/Month) $140 $120 $100 $80 $60 $40 $20 $0 Manila Bangkok KL Hanoi HCMC Taipei Seoul Shanghai Singapore Beijing Tokyo Hong -Pudong Kong Source: CBRE Research Asia Concerns over the possibility of a slower global recovery will inevitably affect the pace of overall office rental growth in the region. However, the long form market fundamentals in Asia remain solid and the regional economic rebound since the global economic crisis suggests office demand is more concrete here compared to other regions. RETAIL Retail property markets across the region continued to be active with international luxury brands, F&B outlets and fashion retailers accounting for the bulk of leasing transactions completed during the period. In the fourth quarter of 2011, domestic and international retailers continued to expand despite slower sales growth and weakening consumer confidence. Many groups began to exercise greater caution towards expansion, however, amid the weakening global economic environment. Rental growth across Asia Pacific is expected to continue to slow in the months ahead, and could begin to decline if consumers cut back on discretionary spending. PAGE 10 A-16

17 Economic Overview Figure 2.8 Prime Retail Rents, Key Asian Markets, Q $1,600 $1,400 $1,200 Rents (US$/psm/Month) $1,000 $800 $600 $400 $200 $0 Manila Bangkok Hanoi HCMC Taipei KL Shanghai Singapore Beijing Tokyo Hong Kong Source: CBRE Research Asia Steady economic growth and rising income levels should ensure healthy demand for retail space. LUXURY RESIDENTIAL The luxury residential property sector in Asia continues to perform steadily, although some major markets began to lose momentum with the disparity between the top and bottom end of price and rental movements becoming less noticeable than previously reported. Figure 2.9 Luxury Residential Capital Values and Rents, Key Asian Cities, Q $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 Beijing Shanghai Guangzhou Hong Kong Singapore Bangkok HCMC Kuala Lumpur $70 $60 $50 $40 $30 $20 $10 $0 Source: CBRE Research Asia HOTELS The hotel sector in Asia saw steady growth in average daily rates (ADR) through the first half of 2010, continuing the rebound from the lows of mid In 2011, ADRs in Singapore and Hong Kong continued to grow, while ADR growth slowed in other cities in the region. PAGE 11 A-17

18 Economic Overview Figure 2.10 Hotel Average Daily Rate, Key Asian Cities, 1H 2011 Source: Source: STR Global/CBRE Hotels The overall outlook for 2012 is cautious. After two years of increasing occupancy and ADR, 2012 is likely to see a further increase in ARD while occupancy levels remain unchanged RESIDENTIAL SALE PROCESS On August 13, 2009, the Government issued Decree No. 69 which addressed a number of issues, including development, land use, land expropriation and compensation. The Government also issued Circular No. 14 to implement Decree 69. The Decree breaks down land use planning into national, provincial, district and ward level planning. Planning for technology and special economic zones is also separated from general planning. The Decree equalizes the land use fee rates between investors who are paying one time rental payments and investors who receive a grant of land. Decree 69 also gives local authorities more leeway to determine the unit land price (ULP) payable to the State. Previously, the rate was fixed with little discretion. Lastly, the Decree removes the VND5 million cap on compensation for relocation support. It also changed the duration landowners can receive support. Previously the support was limited to 12 months, but under the new decree landowners can receive support for up to 24 months, depending upon how much land is expropriated. Under Decree 71/2010/ND-CP with effect from August 8, 2010: 20% of residential units within a project can be sold via Capital Contribution Agreements (CCA) and outside real estate transaction floors. This unofficial sale can take place before the foundation of the project is completed, but after infrastructure works have started. The remaining 80% must be sold under Sales and Purchase contracts via real estate transaction floors. This official sale can only take place after the foundation of the project has been completed. The sale must be advertised in at least 3 widely-read newspapers. CCA is a form of property trading where a condominium buyer makes a capital contribution to the development group structured such that their investment will grant the buyer rights to a unit in the project at a pre-determined price. Once the foundation is completed, the developer will sign Sales & Purchase contracts with the CCA holders to legalize the sales. BUYING A RESALE PROPERTY PAGE 12 A-18

19 Economic Overview The buyer is required to pay the price amount in full at time of purchase. The buyer must also arrange their own source of funds without any assistance from the seller. The purchase is either 100% equity or in a certain proportion of bank borrowings (up to 70%) depending on their credit worthiness. In general these purchases involve only cash, possibly with loans from family. BUYING A NEW PROPERTY THAT IS STILL UNDER CONSTRUCTION Typically, a large quantity of units are traded before the entire development is complete, either through Capital Contribution Agreements (maximum 20% of the units) or pre-sold through Sale & Purchase contracts once the construction of the basement and site infrastructure is completed. Payment schedules vary depending upon the project. Projects can collect a maximum of 70% of the total purchase price before completion. It is common to see developers cooperating with banks, in which the bank offers favourable financing terms to buyers of that developer s condominium units TARGET MARKET AND CUSTOMER PREFERENCE Target buyers can be divided into end users and investors. End users are concerned with factors such as timing (delivery vs. payment), payment terms, loan issues, delivery, resale conditions and quality of building management after purchase. Investors are primarily concerned with the return they are able to achieve over the short, medium or long-term. END USERS Middle-aged parents, young couples or professional singles: have high income; want to buy their first modern, comfortable and safe apartment for themselves; or change their current living environment for a more modern one with higher security and better facilities; see a home in a well known condominium project as a status symbol; are aspirational. Value purchasers: prioritises functional benefits such as asking price, unit size, basic facilities and financing. INVESTORS Speculative investors: invest early in projects; aim to profit from discounted prices at launch; benefit from appreciation in value as completion nears; flip units; look for capital returns of between 10% and 15% between launch and end-user purchase; possibly hold onto purchase after completion to realise capital growth without recognising the income potential of taking on renters. Buy-to-let investors: treat their apartment purchases as a revenue generating asset. PAGE 13 A-19

20 Economic Overview 2.4. RETAIL ECONOMIC NEEDS TEST Under Vietnam s WTO commitments, the Vietnamese distribution market in general and retail market in particular, have become more open to foreign investors. Foreign investors have been allowed to establish wholly-owned companies to engage in retail activities in Vietnam since January 1, Foreign-Invested Enterprises (FIE) can establish one retail outlet without any restrictions. However, the establishment of additional retail outlets shall be allowed on the basis of an Economic Needs Test (ENT). ECONOMIC NEEDS TEST (ENT) According to the Legal Newsletter prepared by Phuoc and Partners in February 2010, the test contains the following main criteria: Establishing retail outlets outside the first one will be taken into account case by case depending on the number of retail outlets, market stability, population density of the city or province where a fresh retail outlet will be established and the fact whether the investment project is in conformity with the master plan of such city or province. Thus, licensing is solely at the discretion of the Vietnamese authorities MAJOR PLAYERS IN VIETNAM REAL ESTATE Vincom has built a strong reputation in the Vietnamese property market based on its ability to secure prime sites in the Central Business Districts (CBDs) of HCMC and Hanoi and to be able to successfully deliver according to the plan. Additionally, Vincom has successfully completed construction of numerous mixed-use developments in prime locations, further enhancing their reputation. Due to the fragmented nature of the property market in Vietnam, it is difficult to objectively identify and benchmark Vincom s competitors. Examples of major players in the Vietnamese real estate market include: HOANG ANH GIA LAI (HAGL) HAGL began as a manufacturer of furniture and expanded into a furniture and marble/granite distribution company that exported across the globe. Given the competitive advantage the company had in material, supplies, human resources and branding, it also expanded into real estate by establishing its property subsidiary HAGL Land. Their focus is on low to mid-end housing for the mass market and the company has developments in Da Nang, Quy Nhon, Da Lat, Pleiku and Can Tho, but tend to focus on Districts 2, 6, 7, Nha Be and Binh Thanh in HCMC. They aim to develop a total Gross Floor Area (GFA) of 2.5 million square metres (sm) across 26 projects, with all projects starting construction by The total land area of all projects is 430,000 sm with plans to deliver 2,000 condominium units per year. In March, 2012, the credit rating agency Fitch downgraded HAGL s outlook from stable to negative, citing the downturn in the real estate market, among other factors. BITEXCO GROUP Bitexco Land is the real estate subsidiary of Bitexco Group, developers of the high-end Manor residential projects in HCMC and Hanoi. They also developed the Bitexco office building in the CBD of HCMC and the newly completed Bitexco Financial Tower, a 68 story office building with a retail component that at the time of completion was the tallest building in Vietnam. Planned developments in HCMC include the Golden Sites of Ben Thanh Twin Towers, Ma Lang Complex and the Le Loi site. The site for the Ben Thanh Twin Towers project has been cleared, and subsequent construction progress is expected to be according to schedule. In Hanoi, planned developments include the JW Marriott Hotel, which is located next to the National Convention Centre. SSG Established in 2003, SSG Group focuses on property development, education, industrial parks, construction, trading and mining. SSG Group has several high profile sites in HCMC and Hanoi, the most notable being the Saigon Pearl PAGE 14 A-20

21 Economic Overview residential development. Other projects include Saigon Airport Plaza, SSG Tower, Petrosetco Tower, Thao Dien Pearl and Thanh Da Pearl in HCMC and the Petro Complex in Hanoi. SSG s strategic partners are Vinacapital, Tongyang Group, Bao Viet Insurance and Vietnam Partners. SSG Group is also planning to build 280 apartments in two 14 storey blocks in Tan Binh District, in HCMC. VINACONEX GROUP VINACONEX is engaged in a number of different sectors with real estate investment and development being one of its core businesses. Key market areas include Hanoi, Hai Phong and Ho Chi Minh City. The company is active in the high-end and mid-end residential markets. Notable projects in Hanoi include the 264-hectare North An Khanh New Township, the high-end Trung Hoa-Nhan Chinh Urban Area and the high-end No. 5 Complex in Thanh Xuan District, as well as the 172-hectare high-end Cai Gia Cat Ba Tourism Urban Area on Cat Ba Island and the Thao Dien high-rise complex in District 2 of HCMC. It has also developed various other mid-end urban and residential areas throughout Vietnam. SONG DA GROUP Song Da is most active in Hanoi, Hoa Binh and northern Vietnam. In the southern region, the group has a number of projects in Nha Trang City and Ho Chi Minh City. Song Da Group is active in the mid-end market segment, with occasional participation in high-end projects. Notable projects under development include the 289-hectare Nam An Khanh New Urban Area, the high-end My Dinh-Me Tri Urban Area, the 9.2-hectare Usilk City, the 1,400-hectare Tien Xuan New Urban Area in Hoa Binh City, the high-end Song Da-Thang Long City View Complex, as well as a number of additional mid-end developments in urban areas. Some members of the group, also the developers of well-known residential projects in Hanoi, have been facing negative publicity lately due to internal organisational conflicts and slow construction progress at major sites. PHU MY HUNG Taiwanese developer Phu My Hung Corporation is one of the most well known developers in HCMC, whose District 7 development has become so successful that the area has now adopted the Phu My Hung name. The group was established as a joint venture in 1993 by the Ho Chi Minh People s Committee and the Central Trading & Development Group, (Taiwan). Phu My Hung Corporation has over a number of years developed and continues to develop the 600 ha Phu My Hung urban area. The Phu My hung development has benefited from the construction of the 120m wide Nguyen Van Linh Parkway. The parkway has 14 lanes as well as a 18m 36m piece of green land in the section in the centre to provide opportunity in the future for expansion. The most recent and high-profile part of the Phu My Hung Corporation s development to be marketed is the Crescent, a waterside, mixed-use destination comprising residential, retail, leisure, office and serviced apartment space. PAGE 15 A-21

22 HANOI REAL ESTATE MARKET 3. HANOI OVERVIEW Located on the banks of the Red River, Hanoi is the capital and the second largest city in the Socialist Republic of Vietnam. Hanoi has a warm, humid tropical climate, typical of northern Vietnam with four seasons: spring, summer, autumn and winter. As the capital of Vietnam for one thousand years, Hanoi is considered to be a city of significant cultural and historical importance. Hanoi is a major tourist centre with a favourable geographic location and many historic and cultural sites. In 2008, Hanoi officially annexed Ha Tay Province, four communes of Hoa Binh Province and Me Linh Commune of Vinh Phuc Province. The expansion will provide the city with more space for urban planning and the development of infrastructure improvements, which will decentralise the urban population to a greater extent. Hanoi s proposed Capital Construction Master Plan for 2030 with a Vision to 2050 was released in April Under the plan, Hanoi is expected to have a population of around 9.1 million by 2030 and over 10 million by Its central urban area will accommodate million people and the downtown core, including the Old Quarter, will have a maximum population of 800,000 citizens. Prior to the expansion of Hanoi on August 1, 2008, the city covered an area of sq km, with a population of about 3.4 million (2007). By the end of 2009, one year after the annexation, the city covered an area of 3,300 sq km with a population of 6.5 million. With Ha Dong being transformed to an inner district and Son Tay s reclassification as a town, Hanoi now encompasses ten inner districts, one town and eighteen outer districts. Figure 3.1 Hanoi Overview PAGE 16 A-22

23 4. OFFICE MARKET STUDY 4.1. MARKET OVERVIEW MARKET OVERVIEW Most of Hanoi s office buildings are located in Hoan Kiem, Hai Ba Trung, Ba Dinh and Dong Da districts. These districts have always been commercial, especially along main streets such as Hai Ba Trung, Phan Chu Trinh, Ngo Quyen and Ly Thai To. The Grade A office sector is comprised of small to medium-size office buildings typically located in Hoan Kiem District and are leased to blue chip local companies, multinational corporations, and stateowned enterprises. Non-CBD office buildings however, are generally situated in Dong Da and Ba Dinh districts, mostly along Kim Ma and Lang Ha Streets. New developments, which are larger in scale, are located in the developing business district west of the city centre along the Pham Hung corridor. The expansion of and the shift away from, the current CBD is attributed to the high density of the current CBD, limited amount of vacant land, high land prices, building height restrictions and insufficient infrastructure. In Hanoi, office buildings are classified as Grade A, Grade B and Grade C according to a combination of location, physical and aesthetic characteristics, security systems and competitive positioning in the marketplace. Professional management and maintenance services are also important factors. A Grade A office building is defined as a modern building, located in one of the key business districts with good accessibility, a definite market presence, high-quality finishings, a large floor plate (approximately 1,000 sm), a flexible layout, 80% - 85% efficiency ratio, 2.65m 2.75m ceiling height, international standard mechanical systems and central air-conditioning. In addition, a Grade A office building requires a professional international management company and must provide adequate parking space for tenants and guests and a 24/7 security system. These buildings will have little functional obsolescence and deterioration. Buildings that are inferior with respect to the location, quality and finish of Grade A office buildings are classified as Grade B or C. As Vincom s activities mainly relate to the Grade A and B office sectors, we have focused on these market sectors. MARKET PRACTICE FOR OFFICES IN HANOI Lease Duration A typical lease term is 3 5 years, although longer lease terms have been entered into in a few rare cases. A three year lease is subject to rent review after three years at the open market rent (OMR), which means the prevailing market rent at that point in time, with an option to renew for a further three year term, adjusted to the OMR. If the parties cannot agree on the OMR, an arbitrator determines the OMR. Occupancy Cost Rent is quoted in US$ per square metre (psm) per month. Rent is payable quarterly in advance, including service and management charges but excluding 10% VAT. The tenants pay deposit, rent and maintenance fees based on the net area. PAGE 17 A-23

24 4.2. EXISTING SUPPLY At end 2011, the total office supply was 977,363 sm, of which 725,456 sm of stock is across Grade A and B buildings. The 15 Grade A office buildings comprise about 254,332 sm of space, which accounts for about 26% of total supply. Grade B office space was at 471,124 sm, accounting for 48% of the market. Charmvit Tower, at 27 storeys, was opened in the third quarter of 2010, bringing 42,152 sm to the market. It is the first Grade A building to enter the market since the end of Keangnam Landmark 72, the newest entrant in the fourth quarter of 2011 provided a huge additional supply of 89,000 sm to the market. This is the largest office project in Hanoi to date, more than double the size of the second largest, Charmvit Tower (42,152 sm). Charmvit Tower and Keangnam Landmark 72 have opened up a market for Grade A office in the emerging commercial area west of the CBD. In 2011, the Grade B submarket welcomed a large influx of additional supply from eight projects with 125,219 sm. At the end of the fourth quarter of 2011, Grade B office stock was four times bigger than that at the end of The majority (nearly 34%) of Grade B stock is located in the midtown area (Ba Dinh and Dong Da districts), an area that is expected to see expanding Grade B office development. Another 32% of total Grade B stock is located in the CBD, while the western submarket secured 28% and other districts acquired 6%. Figure , ,000 Office supply (NLA, sm) 600, , , , , ,000 0 Office, Existing Supply by Grade, Hanoi Grade A Grade B PAGE 18 A-24

25 Table 4.1 Office, Existing Grade A Supply, Hanoi No. Project Name Area Address District Net lettable area (sm) Vacancy Rate (%) Asking rent (US$/sm/ month) Time of Completion 1 Central Building CBD 31 Hai Ba Trung Hoan Kiem 3, % 48.5 Q3/1995 Central Building Ltd. Developer 2 International Centre CBD 17 Ngo Quyen Hoan Kiem 6, % 34.0 Q3/1995 International Centre Co., Ltd. 3 Daeha Business Centre Midtown 360 Kim Ma Ba Dinh 18, % 41.6 Q2/1996 Daeha Co., Ltd. 4 Hanoi Tower CBD 49 Hai Ba Trung Hoan Kiem 9, % 45.0 Q4/1997 Hasin International Co., Ltd Ly Thai To Building CBD 63 Ly Thai To Hoan Kiem 6, % 48.5 Q1/1998 Doan Ket International Co., Ltd. 6 Sun Red River Building CBD 23 Phan Chu Trinh Hoan Kiem 13, % 45.0 Q2/1999 Sun Red River Co., Ltd. 7 Vietcombank Tower CBD 198 Tran Quang Khai Hoan Kiem 19, % 35.0 Q4/2000 Vietcombank Tower Co., Ltd. 8 Opera Business Centre CBD 60 Ly Thai To Hoan Kiem 2, % 30.0 Q1/2007 Opera Business Center JVC 9 Pacific Palace CBD 83B Ly Thuong Kiet Hoan Kiem 16, % 49.6 Q1/2007 IMO Development 10 Asia Tower CBD 6 Nha Tho Hoan Kiem 3, % 45.0 Q1/2008 Asia Tower JVC 11 Sun City Building CBD 13 Hai Ba Trung Hoan Kiem 6, % 41.0 Q2/2008 Sun City Group 12 BIDV Tower CBD 194 Tran Quang Khai Hoan Kiem 10, % 41.0 Q4/2008 BIDV Tower JVC 13 Charmvit Tower CBD 117 Tran Duy Hung Cau Giay 42, % 30.0 Q3/2010 Charmvit Group 14 Sentinel Place CBD 41A Ly Thai To Hoan Kiem 6, % 44.0 Q4/2010 Foreign Affair Department & Viet Bac Co., Ltd. 15 Keangnam Landmark 72 West Lot E6 Pham Hung Tu Liem 89, % 30.0 Q4/2011 Keangnam Vina Total 254, % 35.9 PAGE 19 A-25

26 Table 4.2 Office, Existing Grade B Supply, Hanoi No. Project Name Area Address District Net lettable area (sm) Vacancy Rate (%) Asking rent (US$/sm/ month) Time of Completion 1 HITC West 239 Xuan Thuy Cau Giay 10, % 26.0 Q2/1995 Schmidt Vietnam Co., Ltd. 2 Tungshing Square CBD 2 Ngo Quyen Hoan Kiem 8, % 36.0 Q4/1996 BIC-Tungshing Co., Ltd. 3 Horison Hotel Midtown 40 Cat Linh Dong Da 4, % 27.0 Q4/1996 Global Toserco JVC 4 North Star CBD 4 Da Tuong Hoan Kiem 2, % 27.3 Q2/1997 N/A 5 Hanoi Central Office Building CBD 44B Ly Thuong Kiet Hoan Kiem 8, % 45.0 Q4/1997 SAS-CTAMAD Co., Ltd. Developer 6 Sofitel Plaza Other 1 Thanh Nien Tay Ho 2, % 31.0 Q1/1998 West Lake International Hotel 7 Prime Centre CBD 53 Quang Trung Hoan Kiem 7, % 31.8 Q3/1998 Prime Development Co., Ltd. 8 Rose Garden Midtown 6 Ngoc Khanh Ba Dinh 1, % 21.0 Q4/1998 Giang Vo Development JVC 9 V-Tower Midtown 649 Kim Ma Ba Dinh 4, % 27.0 Q3/1999 VinaPon Development JVC 10 Hanoi Lake View Other 28 Thanh Nien Tay Ho 1, % 26.0 Q1/2001 Hanoi Lake View Sport JVC 11 Trang Tien Plaza CBD 24 Hai Ba Trung Hoan Kiem 2, % 20.0 Q1/2002 Trang Tien Plaza Co., Ltd. 12 Artex Port CBD Ngo Quyen Hoan Kiem 4, % 24.0 Q1/2004 Handicraft & Art Articles Ex-Im National Corporation 13 Ocean Park Midtown 1A Giai Phong Dong Da 18, % 21.0 Q2/2004 Vietnam National Shipping Lines 14 Vincom City Towers CBD 191 Ba Trieu Hai Ba Trung 30, % 35.0 Q4/2004 Vietnam General Commercial JSC 15 Toserco Building Midtown 269 Kim Ma Ba Dinh 3, % 30.0 Q2/2006 Toserco Hanoi Quang Trung CBD 59 Quang Trung Hoan Kiem 3, % 20.0 Q2/2006 Hanoi Construction Corporation 17 Harec Building Midtown 4 Lang Ha Ba Dinh 8, % 23.0 Q2/2006 Habeco 18 Hoa Binh International Towers West 106 Hoang Quoc Viet Cau Giay 12, % 25.0 Q3/2006 Hoa Binh Co., Ltd. 19 Viglacera Tower West Me Tri Tu Liem 13, % 23.0 Q1/2007 Viglacera 20 VIT Tower Midtown 519 Kim Ma Ba Dinh 15, % 27.0 Q2/2007 Industrial Investment and Commercial Co., Ltd. 21 Kinh Do Tower CBD 93 Lo Duc Hai Ba Trung 8, % 20.0 Q4/2007 Capital Hotel Co., Ltd. 22 Dao Duy Anh Tower Midtown 9 Dao Duy Anh Dong Da 9, % 24.6 Q4/2007 Van Nien Construction JSC 23 Viet Tower Midtown 1 Thai Ha Dong Da 10, % 25.0 Q2/2007 Hoa Binh Investment Co., Ltd. PAGE 20 A-26

27 No. Project Name Area Address District Net lettable area (sm) Vacancy Rate (%) Asking rent (US$/sm/ month) Time of Completion 24 Kham Thien Building Midtown Kham Thien Dong Da 4, % 21.8 Q3/2008 Military Bank Developer 25 RESCO Towers Midtown 521 Kim Ma Ba Dinh 21, % 27.3 Q1/2009 Hanoi Real Estate Service Co., Ltd. 26 CDC Building CBD Le Dai Hanh Hai Ba Trung 8, % 27.0 Q1/2009 Nhan Nghia Corporation 27 Ladeco Building Midtown 266 Doi Can Ba Dinh 16, % 16.4 Q3/2008 Ladeco 28 The Manor West My Dinh Tu Liem 6, % 22.0 Q2/2008 Bitexco 29 Plaschem Other 562 Nguyen Van Cu Long Bien 12, % 14.6 Q2/2009 Plastic Chemical JSC 30 CEO Tower West Pham Hung Tu Liem 12, % 21.0 Q3/2009 C.E.O Investment JSC 31 Vinaconex No.9 West Pham Hung Tu Liem 12, % 22.0 Q4/2009 Construction Joint Stock Company No9 32 Vinaconex Tower Midtown Lang Ha Dong Da 8, % 33.0 Q4/2009 Vinaconex JSC 33 CMC Tower West Dich Vong Cau Giay 12, % 21.0 Q4/2009 CMC group 34 Capital Tower CBD 109 Tran Hung Dao Hoan Kiem 21, % 34.0 Q1/2010 Capital Tourist Trading and Investment Company 35 Hanoi Tourist Building CBD 18 Ly Thuong Kiet Hoan Kiem 7, % 30.0 Q2/2010 Hanoi Tourist 36 Lilama 10 Tower West Extended Le Van Luong Thanh Xuan 12, % 17.5 Q4/2010 Lilama Hoang Cau Geleximco Midtown 36 Hoang Cau Dong Da 21, % 24.0 Q1/2011 Geleximco 38 Crown Complex West Le Duc Tho Tu Liem 13, % 27.0 Q1/2011 Tran Hong Quan Co, Ltd. 39 TTC Tower West Lot B1A Duy Tan Cau Giay 11, % 17.0 Q1/2011 TTC Trading Technical Co., Ltd 40 Phu Dien CBD 83A Ly Thuong Kiet Hoan Kiem 10, % 28.0 Q2/2011 INTRACOM 41 Han Viet Tower Other 203 Minh Khai Hai Ba Trung 13, % 20.0 Q3/2011 Space 21 Fonexim 42 Oriental Tower Midtown 324 Tay Son Dong Da 10, % 23.0 Q3/2011 SeA Bank 43 Viet A Tower West Duy Tan Cau Giay 14, % 18.0 Q4/2011 Viet A Group Holdings Co 44 Mipec Tower Midtown 229 Tay Son Dong Da 29, % 25.0 Q4/2011 Mipec 471, % 25.2 PAGE 21 A-27

28 4.3. DEMAND ANALYSIS Multinational corporations and large local companies, embassies, and governmental institutions comprise the majority of Hanoi s office occupants. Because these organisations are less price-sensitive, their demand for offices in prime locations is not deterred as prices rise. Thus rental rates react more slowly to increasing prices, compared to HCMC s market. The traditional Hanoi-based organisations have maintained their space in the prime Grade A buildings of Hoan Kiem district, but are not involved in the absorption of new project space. The growing reliance of the real estate market on multinationals as opposed to governmental organisations represents a major change in the dynamic of the Hanoi office market. Demand for office buildings in Hanoi s market also comes from companies relocating from villas or townhouses into high-rise office buildings with better facilities, companies expanding operations with continued growth in their respective market and new companies that have entered the market. Aside from expanding foreign business interests in Hanoi, Vietnamese tenants still play a major role in the market. New buildings in the West have managed to take advantage of a trend of centrally located companies moving out to newer buildings, offering full floor plates and more affordable rental rates. Local companies, especially joint stock banks are still major players in the market. Most recently, take up in Grade A buildings increased due to the general economic recovery, growing confidence in Vietnam s market and the availability of better quality premises with larger floor plates offered at attractive prices. Tenants in Grade A buildings are willing to wait to make the move west, preferring to renew leases in their current premises for the short term. New entrants to the market come from a variety of industries including energy and telecommunications and financial institutions including insurance companies and banks. These newcomers are expected to contribute to a high take up of Grade B office space in Midtown in the coming years. In times of economic downturn, tenants are hesitant to have their offices relocated because of hight relocation cost. In the past, to attract tenants, developers implemented various types of promotiosn, including displaying billboards outside buildings for free, and extending the free-rent period. Tenants can be offered three to six months of free rent (with the contract term of at least three years) for projects in the CBD, and eight months to one year of free rent (with the contract term of at least five years) for projects in the western submarket. Through a difficult leasing period, developers flexibly expanded their target market. Tenants have different purposes of using the floor; they not only use it as an office but also as a showroom. The main tenants were still real estate investors who rented the office properties for residential show units. For example, Hoa Phat Company opened show units for Mandarin Garden in Charmvit Tower; Indochina Land leased the second floor at HITC for the Indochina Plaza Hanoi; or in upcoming period, Tan Hoang Minh will launch their show units at BIDV Tower. Beside the space for show units, some furniture showrooms were also opened in the office buildings such as Rossano in the second floor of Kham Thien Building. Demand was strongly affected by some factors such as availability of parking lots and advertising boards. Parking areas are increasingly scarce in Hanoi, which makes parking more stressful. The provision of parking lots inside the buildings will help to highly increase the buildings competitiveness. The ability to provide advertising placements will also help developers to lease more easily. Tenants prefer the buildings with widely advertised conditions and low costs. With regard to the office market for long-term lease, trading activities were no longer as strong as before, because funds were not abundant. PAGE 22 A-28

29 Figure , ,000 Office, Grade A & Grade B Net Absorption and Vacancy Rate, Hanoi 40% 30% Net absorption (sm) 80,000 60,000 40,000 20,000 20% 10% 0% Vacancy rate (%) Net absorption Vacancy rate -10% 4.4. RENTAL RATE Figure 4.3 Office, Asking Rents by Grade, Hanoi $60 Average asking rents (US$ psm per month) $50 $40 $30 $20 $10 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Grade A Grade B Prior to 2007, rents rose steadily in line with inflation. In 2007 and through 2008, Hanoi s market saw a dramatic increase in rental rates in both Grade A and Grade B buildings attributed to the significant influx of foreign investment into Hanoi after Vietnam joined the WTO in By early 2009 the office market faced downward pressure on rents as the global economic crisis began to impact Vietnam more directly, hitting companies in the banking, property, manufacturing and shipping industries particularly hard. Average asking rents in Grade A buildings have fell from US$50 psm per month at the end of 2008, to a range of US$40-$44 psm per month for the majority of 2009 and 2010, standing at $41.11 psm per month at the end of In 2011, the launch of the giant, Keangnam Landmark 72 drove average rents down by 10% y-o-y, at approximately US$36 psm per month. Average asking rents in the Grade B sector experienced greater fluctuations due to significant increases in supply. Grade B rentals peaked at US$36 psm per month in mid-2008 and fell to a low of US$25 psm per month in the last PAGE 23 A-29

30 quarter of Since then rents have been rising through 2010, stabilising at US$28 psm per month at the end of Contrary to the trend in 2010, a downward trend dominated in Average asking rents fell from US$27 psm per month in the first quarter of 2011 to US$25 psm per month in the fourth quarter of This reduction can be attributed to the emergence of large additional stock from eight projects with 125,219 sm and rent decreases in both CBD projects and projects in the west VACANCY RATE Figure % 35% 30% Vacancy rate (%) 25% 20% 15% 10% 5% 0% Office, Vacancy Rate by Grade, Hanoi Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Grade A Grade B From 2006 through 2009, the vacancy rate in Grade A office buildings remained relatively stable at below 4%. The recent rise in vacancy rates in the Grade A market can be largely attributed to the introduction of BIDV Tower in the fourth quarter of 2009, which resulted in the vacancy rate increasing to 11%. Vacancy rates then spiked to 25% in the third quarter of 2010 with the addition of Charmvit Tower. In the final quarter of 2010, the market witnessed strong take up in both BIDV Tower and Charmvit Tower and good pre-leasing activity in Sentinel Place, which resulted in the average vacancy rate in Grade A buildings dropping considerably to 17% at the end of In the first three quarters of 2011, a downward trend persisted. This reduction in average market vacancy could be attributed to strong demand for space in newer projects. During this time, the market saw over 19,500 sm taken up in Charmvit Tower and nearly 1,600 sm leased in BIDV Tower. Average vacancy in Grade A buildings witnessed a historic high of 37% in the fourth quarter of The dramatic increase could be explained by the opening of the giant Keangnam Landmark 72 in the western submarket. Newly launched, Keangnam Landmark 72 reported a modest occupancy, at 7% only. The average vacancy rate in Grade B buildings has experienced greater fluctuations compared to the Grade A buildings due to steady increases in supply. In general, the Grade B market has seen a more pronounced rise in vacancy. Prior to the end of 2008, vacancy in Grade B buildings generally stayed below 5%. In the first half of 2009, vacancy rates rose to approximately 18% due to an influx of new supply and the effects of the global financial crisis. These factors also led to negative absorption of office space. Vacancy rates improved beginning in mid-2009 to 15% by the end of 2009 and continued to improve into The occupancy rates of the Grade A and Grade B office market experienced less fluctuations overall in The pace of absorption has picked up through 2010 and vacancy rates have dropped to 12% in the third quarter of 2010, and slightly increased to 15% in the fourth quarter of PAGE 24 A-30

31 In the first three quarters of 2011, vacancy rates fluctuated at around 17%-19% before rising to 21.42% in the fourth quarter of Similar to vacancy rates in Grade A offices, vacancy rates in Grade B offices also increased due to a large volume of new supply entering the market in the fourth quarter of Of nearly 101,000 sm of vacant space in Grade B buildings, nearly 28% came from the two new Grade B projects launched in the fourth quarter of 2011 (Viet A Tower and Mipec Tower) FUTURE SUPPLY In 2012, 19 new projects of Grade A and B are expected to launch with a total GFA of over 388,000 sm. New projects opening in 2012 are heavily concentrated in the west of Hanoi, with 56% of new supply, followed by Midtown at 24%, and the CBD with just 20%. Among the under-construction projects, Licogi 13, Vicem Tower, Indochina Plaza Hanoi, Apex Tower are progressing ahead. It is likely that the developer of EVN Towers, Electricity of Vietnam (EVN) will occupy a majority of the space internally, and reserve a portion of the building for lease. The ICON4 project at La Thanh Street is also rushed to fit out. With 44,000 sm and 27 storeys, the building will provide additional supply for the Grade B segment in the Dong Da region. This project is being offered for long-term lease. Some tenants bought office space for internal use but some of them bought the space with an investment purpose for subleasing. While HH4 Song Da Tower delayed fitting out, Handico Tower project, located opposite to Song Da Tower, is under fast-paced construction. Together with Landmark 72, CEO Tower, Apex Tower, these projects form a cluster of highend offices at the intersection of Pham Hung, Me Tri. NLA of this cluster is up to 200,000 sm, equivalent to 78% of the current total supply of Grade A office. 13 projects of Grade A and Grade B (two Grade A buildings and 11 Grade B buildings) are expected to be launched in 2013, providing 360,000 sm GFA of new supply to the market. Among those, two notable Grade A projects include Cornerstone Building (22,000 sm; VIB Ngo Gia Tu JSC as developer) and Habico Tower (54,000 sm; Hai Binh JSC as developer). The exact projection of future supply past 2013 is more difficult to determine as projects could face delays. This estimation is likely to shift as developers adjust their construction timelines and/or project scale, and some buildings are transferred to internal use only by developers. Although demand will grow significantly, it will not be sufficient to absorb the large quantity of future supply is expected to enter the market in such a short period of time. Developers have noticed this fact, thus projects currently under construction will possibly slow down their progress, and projects under planning might make changes to their asset mix. Figure 4.5 Office, Future Supply by Grade, Hanoi 1,000,000 Future supply (GFA, sm) 800, , , , f 2013f 2014f 2015f Grade A Grade B PAGE 25 A-31

32 4.7. MARKET OUTLOOK Macroeconomic conditions showed no sign of ease during the last quarter of Inflation pressure, rising costs of commodities and increasing interest rates will impact the development of future office supply in Hanoi in Instability in currency markets made it difficult for developers to prepare their business plans accurately, leading to the changes in projects construction time. The supply of Grade B office will continue to increase in the near future with better quality projects, focusing on the tenants demand for full facilities and reasonable rents rather than investing on projects brands. Grade A office buildings in the west with higher quality but rents equivalent to Grade B projects will strongly attract tenants. As seen in Keangnam Landmark 72, major changes in supply, asking rents and vacancy rates have been made to Hanoi s office market. In order to attract tenants to fill its huge space, Landmark 72 s developer is expected to implement some competitive strategies, in which pricing strategy is often viewed as the most important tool. This also implies that developers of competitive projects in the west should compromise and provide further incentives to attract and retain tenants. In 2012, Vietnam will have major changes to the free trade agreement under the WTO agenda. When this occurs, demand for office will change along with the openness of the economy. Lowering of trade barriers is predicted to result in increased multinational companies entering the market. Although the demand is stable, the supply in the market is still very large, making the market highly competitive. The long-term lease options with low rents will be developers choice when they aim for stable cash flow rather than high short-term profits. The changes in supply, prices and vacancy rates will motivate developers to review the plans for future projects. Therefore the progress and quality of projects may be changed. Additional supply will be delayed further, thus help the rents of the operating projects to maintain and be more stable. Besides, the rapid increase in supply is expected to lead to increased vacancy as demand is not expected to catch up in near term. PAGE 26 A-32

33 5. RETAIL MARKET STUDY 5.1. MARKET OVERVIEW The number of large-scale retail centres in Hanoi is growing, as more construction sites are moving towards their completion. Having 17 retail centers (department stores and shopping centers) with an average size of approximately 13,000 sm (NLA), this number is expected to increase by another nine centers in 2012, which have an average size of approximately 20,000 sm (GFA). Hanoi s retail scene had seen some change within the year Additional supply exceeded existing supply and the size of each centre almost grew graduatlly as a new centre opened. Developers were keen to open their centres and have them operating by the 2012 Vietnamese Lunar New Year ( Tet ), as Tet started earlier in 2012 than in previous years. Although the market had seen major entrances, the majority of Vietnamese still prefer to shop in street locations, as those shops offer more competitive familiar shopping environment. Nevertheless, the foot traffic amongst the centres was particularly high during the first week of opening. Driven by curiosity and opportunity to have a new shopping destination, consumers were coming from as far as 45 minutes outside of Hanoi, to visit e.g. the latest Big C. Since site opportunities for construction remains scarce in CBD locations, non-cbd locations will continue to be in the developers focus for new space. But since the market had seen two major shopping center openings in the east of the city (Long Bien District), the developers focus will solely remain on parts in the West / South-West of the city. Figure 5.1 Retail Clusters in Hanoi PAGE 27 A-33

34 The fourth quarter of 2011 saw the biggest supply in the modern retail history of Hanoi. It does not only mark a change from existing centres, but also indicates a possible trend for future retailing in Hanoi larger in size and further away from the city centre. Furthermore shopping centres tend to have more retail floors with an average of 4.4 floors in 2011, compared to department stores which had an average of 3.7 floors through the end of EXISTING SUPPLY Although there are signs that retail in Hanoi is moving towards modernisation, the majority of retail sales are still being done in street retail shops. Out of the existing centres, shopping centres form the largest proportion, followed by department stores and retail centres. Figure 5.2 Existing Supply by Type 4% 19% 77% Department Stores Shopping Centres Retail Lobbies Figure 5.3 Total Supply (sm NLA) 300, ,000 Total Supply (sm NLA) 200, , ,000 50, Shopping Centre Department Store Retail Lobby PAGE 28 A-34

35 DEPARTMENT STORES With the opening of Parkson Keangnam in December 2011, Parkson extended its presence in Hanoi to two locations. Parkson Keagnam is currently the country s largest operating unit and represents a landmark by opening a department store in the country s tallest building. Located in the West of Hanoi, Parkson Keangnam is set for future development, as it lies in the heart of the future CBD. In close distance are currently operating retail units such as The Garden Mall, Big C Thang Long, Grand Plaza and the soon operating Indochina Plaza Hanoi. Parkson Viet Tower lies within Dong Da District, the cities most densely populated district, had been established successfully. Particular its cosmetics area on the ground floor is very well known. In close distance to Parkson, Pico Mall is the only competitor. Table 5.1 Department Stores in Hanoi No Project Name District Region Opening time Retail Net Lettable Retail type Quarter Year Floors Area (sm) 1 Parkson Viet Tower Dong Da Non-CBD Q Department Store 6 16,000 2 Parkson Keangnam Cau Giay Non-CBD Q Department Store 4 30,000 TOTAL MARKET CURRENT SUPPLY 46,000 SHOPPING CENTRES In the CBD there are six operating shopping centres spacing 152, 494 sm (NLA). Trang Tien Plaza has been excluded from the above statistics, as it is closed for refurbishment. In 2011 Hang Da was the only new shopping centre. Being located in the centre of the Old Quarter, Hang Da won t have to face any competition as long as Trang Tien is undergoing refurbishment. The majority of openings in 2011 happened in non-cbd locations. Within these, Long Bien had seen the highest increase in supply, as two of the city s major retail centres opened within a 2km proximity to each other. But although the two new centre openings mark a milestone in Hanois young retail history, retail clusters under construction and planning in the west, will outsize the existing ones on the eastern side of the Red River. PAGE 29 A-35

36 Table 5.2 Shopping Centres in Hanoi No Project Name District Region Opening time Quarter Year Retail type Retail Floors Net Lettable Area (sm) 1 Hang Da Hoan Kiem CBD Q Shopping Centre 4 6,600 2 Vincom City Towers Hai Ba Trung CBD Q Shopping Centre 5 17,891 4 Vincom Galleries Hai Ba Trung CBD Q Shopping Centre 5 8,500 5 Ruby Plaza Hoan Kiem CBD Q Shopping Centre 5 2,440 6 Hanoi Towers Hoan Kiem CBD Q Shopping Centre 1 2,056 TOTAL MARKET CURRENT SUPPLY IN CBD AREA 37,487 Vincom Center Long 1 Bien Long Bien non-cbd Q Shopping Centre 5 36,000 2 Savico Mega Mall Long Bien non-cbd Q Shopping Centre 4 43,500 3 Pico Mall Dong Da non-cbd Q Shopping Centre 5 19,815 4 The Garden Tu Liem Non-CBD Q Shopping Centre 6 26,700 5 Grand Plaza Cau Giay Non-CBD Q Shopping Centre 5 10,100 6 Big C Thang Long Cau Giay Non-CBD Q Shopping Centre 2 6,500 7 Syrena Shopping Centre Tay Ho Non-CBD Q Shopping Centre 2 4,179 8 Saigon Co.op Mart Ha Dong Non-CBD Q Shopping Centre 3 4,000 9 Ha Thanh Plaza (Hapro) Dong Da Non-CBD Q Shopping Centre 2 1,700 TOTAL MARKET CURRENT SUPPLY IN NON-CBD AREA 152,494 RETAIL LOBBIES Retail lobbies are part of a large mixed-use buildings. The retail lobbies in this report include the Metropole Arcade, Opera Business Centre, The Manor and 83B Ly Thuong Kiet. With the exception of The Manor, these retail lobbies are all located in prime locations in Hanoi s CBD. Table 5.3 Retail Lobbies in Hanoi No Project Name District Region Opening time Retail type Retail Floors Net Lettable Area (sm) 1 83 B Ly Thuong Kiet Hoan Kiem CBD Q Retail lobby 1 2,000 2 Opera Business Centre Hoan Kiem CBD Q Retail lobby 1 1,660 3 The Manor Hanoi Tu Liem Non-CBD Q Retail lobby 1 6,000 4 Metropole Arcade Hoan Kiem CBD N/A 2005 Retail lobby TOTAL UPPY 10,310 PAGE 30 A-36

37 5.3. DEMAND ANALYSIS From a tenants perspective considering renting space seems to be on hold position as currently their expansion plans rather focus upon consolidation than opening new and larger stores. The majority of new stores in shopping centres were fashion shops, followed by shoes & handbags and accessories such as watches and glasses. Until 2009, shopping centres had hardly experienced vacancies and rents were in the favour for developers is expected to see an additional supply of approximately 180,000 sm (approximately 700,000 sm in 2013). Despite the oversupply, additional supply did not have a major effect on the total take up, indicating that there is still demand in the market. The consumer price index (CPI) increased in December 2011 by 0.61% compared to the previous month, although Retail & Services Turnover rose from US$11.44 billion to US$13.63 billion (+23.70%). An increase in fuel, food and electricity prices had caused inflation to rise. For 2012, the CPI is expected to be around 9% to 10%. The opening of Savico Mega Mall and Vincom Center Long Bien, should cover demand for modern retail space in Long Bien for the near future. Both projects rely on future development of Long Bien and its neighbouring district Gia Lam, as both centres can expect the majority of demand to come from these Districts. Currently the Dong Da, Bai Ba Trung, and Hoan Kiem districts are the city s most promising locations for future development alongside to Ba Dinh District, which has not seen any shopping centre establishments so far RENTAL RATE Retail rental trends differed between CBD and non-cbd locations. CBD rents saw an overall steady increase in Having had an average rate of US$56.50 psm for shopping centres and US$65.60 for retail lobbies in the first quarter, rents increased to US$57.50 psm for shopping centres and US$77.20 psm for retail lobbies in the fourth quarter. In non-cbd locations rental rates for shopping centres and department stores have decreased from US$31.20 psm for shopping centres (US$54 psm for department stores) in the first quarter of 2011, to US$27.90 psm (US$45.50 psm for department stores) in the fourth quarter of As more space is entering the market and retail sales continues to be primarily in street shops, shopping centres face the challenge of stagnant demand. Previously, developers could expect a high rental rate from its tenants due to limited modern supply, the sides have changed giving tenants more time when choosing places and comparing prices before they make a decision. Primarily this movement has been the result of an oversupply of retail space and a limited number of retail brands/ tenants. Recent shopping centre openings only achieved a high occupancy rate by offering low rental rates and attractive incentives such as one or two year rent of free period upon signing contracts. Figure 5.4 Asking Rents by Location (US$/sm/month) Asking Rents (US/sm) $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $ CBD non-cbd PAGE 31 A-37

38 In 2012 it is expected that retail rents will continue to be under downward pressure, in particular shopping centre rents in non-cbd locations will be most effected. Within 2012, retail is expanding furthermore in Tu Liem/ Cau Giay District as well as for the first time in Ha Dong District (Melinh Plaza Ha Dong). Shopping centres close to or within the CBD will be less challenged with falling rents than ones being located further away from the city centre. Figure 5.5 Asking Rents by Type (US$/sm/month) Asking Rents (US/sm) $60 $55 $50 $45 $40 $35 $30 $25 $ Shopping Centre Department Store Retail Lobby PAGE 32 A-38

39 5.5. VACANCY RATE In 2011, vacancy rates in CBD and non-cbd locations increased. Vacancy rate stood at 0% in the beginning of 2011 and increased to 6.6% in the third quarter before settling at 5.6% in the fourth quarter. This movement was caused by the additional supply of Hang Da Galleria, which opened its doors with an occupancy rate of approx. 60%, as the 3 rd and 4 th floor were under construction. The highly popular Vincom City Center and Vincom Center Hanoi Tower C operate at close to 100% occupancy, indicating its integrated status within the retail status in the CBD area. In non-cbd locations, Pico Mall, Savico Mega Mall and Vincom Center Long Bien opened with an occupancy rate of 88%, 85% and 100%. Figure 5.6 Vacancy Rate by Location 50.0% 40.0% Vacancy Rate (%) 30.0% 20.0% 10.0% 0.0% -10.0% CBD non-cbd Despite the fact that Parkson has vacancies on rare occasions, these spaces usually fill up quickly. Since Parkson leases its space long-term, the vacancy of department stores are counted as fully occupied. Retail Lobbies in CBD area have continued operating with 0% vacancy, as demand for these locations continues to be high. All CBD retail lobbies are located in prime properties and have strong tenant base. Brands within these locations are exclusive and their location well known amongst its customers. It is expected that the opening of Trang Tien Plaza will cause some exclusive brands to move into the new shopping destination, but vacant spaces in places such as Sofitel Metropole Arcade, Opera Business Centre or Pacific Place is expected to be replaced quickly. Figure 5.7 Vacancy Rate by Type 30% 25% Vacancy Rate (%) 20% 15% 10% 5% 0% Shopping Centre Retail Lobby PAGE 33 A-39

40 5.6. FUTURE SUPPLY By the second quarter of 2012, Trang Tien Plaza and Indochina Plaza Hanoi (IPH) will open their doors and be the first two new major retail projects in Located near Hoan Kiem Lake, Trang Tien will open in a prime location, attracting a large number of high value retail brands. After being under renovation since March 2011, Trang Tien will add approximately 14,000 sm (GFA) of retail space. IPH is located in Cau Giay District and is considered to be one of the top-retail destinations in the new urban area of Cau Giay. Strategically located on Cau Giay Street and close to Pham Hung Street, IPH allows visitors convenient access. Furthermore, with 35,000 sm (GFA) it will be one of the largest retail centres expected to open in Within the year 2012, nine centres will open with a total retail space of 181,220 sm (GFA) retail space. Eight out of these will be in non-cbd locations, indicating that the majority of future shopping centre space will not be in Hoan Kiem or northern part of Hai Ba Trung District. In 2013, up to 800,000 sm (GFA) of new retail space could be introduced to the market; however potential completion delays could result in significant reduction in the new retail space. Figure 5.8 Future Supply (GFA, sm) 900, , , , , , , , ,000 0 Future supply by Status 2012f 2013f 2014f Under Construction Under Planning Note: Future supply for 2014 includes projects which may commence operations through *excl. status On Hold PAGE 34 A-40

41 Table 5.4 List of Retail Projects Under Construction/ On Hold No. Name District Region GFA Expected Year of Completion Status 1 Trang Tien Plaza Hoan Kiem CBD 14, Fitting Out 2 Handico Tower Tu Liem non-cbd 5, Construction 3 Habico Tower Tu Liem non-cbd 34, Construction 4 Indochina Plaza Hanoi Cau Giay non-cbd 35, Construction 5 Eurowindow Multi Complex Cau Giay non-cbd 10, Construction 6 Melinh Plaza Ha Dong Ha Dong non-cbd 45, Construction 7 Dolphin Plaza Tu Liem non-cbd 8, Construction 8 Intracom 8 Dong Anh non-cbd 8, Construction 9 Hapro Cat Linh Dong Da non-cbd 5, Construction 10 Thang Long Int. Village Cau Giay non-cbd 23, Construction 11 Phuong Nam Peal Tower Dong Da non-cbd 9, On Hold 12 Mandarin Garden Tu Liem non-cbd 4, Construction 13 HUD Tower Cau Giay non-cbd 13, Construction 14 Mo Market Hai Ba Trung non-cbd 24, Construction 15 Ciputra Mall Tay Ho non-cbd 130, On Hold 16 Hoang Thanh Tower Hai Ba Trung CBD 10, Construction 17 Lotte Center Ba Dinh non-cbd 35, Construction 18 Royal City Thanh Xuan non-cbd 230, Construction 19 The Lancaster Ba Dinh non-cbd 4, Construction 20 Hapulico Thanh Xuan non-cbd 20, Construction 21 Sunset Tower Tay Ho non-cbd 7, Construction 22 Times City Hai Ba Trung non-cbd 230, Construction Truong Chinh Commercial Complex Thanh Xuan non-cbd 10, Construction 24 N04 South East Tran Duy Hung NUA Cau Giay non-cbd 29, Construction 25 Ha Noi Times Tower Ha Dong non-cbd 7, Construction 26 Ha Noi ICT Tower Cau Giay non-cbd 8, Construction 27 Thang Long No. 1 Tower Cau Giay non-cbd 11, Construction 28 Star City Le Van Luong Thanh Xuan non-cbd 10, Construction 29 Tricon Towers Tu Liem non-cbd 45, Construction 30 Discovery Complex Cau Giay non-cbd 21, Construction 31 Golden Palace Tu Liem non-cbd 19, Construction ,061, PAGE 35 A-41

42 5.7. MARKET OUTLOOK The opening of Trang Tien Plaza in 2012 could cause an expansion of exclusive brands around the streets of Ly Thai To and Trang Tien. As Korloff and Kenzo signalled with their store openings in Hang Bai Street, the area for highend shopping stretches now towards the south west of Hoan Kiem. This could have a possible impact on Vincom City Towers and Vincom Center Hanoi Tower C, as this shopping cluster is the nearest neighbourhood. The fourth quarter of 2011 displayed a trend that is likely to continue through 2012 development of large-scale retail formats in non-cbd locations. As shopping centres visitors started to see shopping as a form of entertainment and not utility only, developers will have to consider these changes in their future plans. In order to gain the maximum of duration of people staying in the centre, entertainment, F&B and supermarkets have become key components. PAGE 36 A-42

43 6. RESIDENTIAL CONDOMINIUM FOR SALE MARKET STUDY 6.1. MARKET OVERVIEW The term Hanoi residential market (or Hanoi) used in this analysis refers to the residential market in ten urban districts (Ba Dinh, Cau Giay, Dong Da, Hai Ba Trung, Ha Dong, Hoan Kiem, Hoang Mai, Long Bien, Tay Ho and Thanh Xuan) and four core rural districts (Gia Lam, Thanh Tri, Tu Liem, Hoai Duc). Before the commercial real estate market emerged in Hanoi in the early 1990s, Hanoians had been located in terraced houses, villas and low rise condominiums, with few residents considering high rise condominiums. High rise condominiums are a recently introduced housing option. Land use rights is regarded as important in Vietnam and Hanoi in particular. The lack of land deters some prospective buyers from looking at condominium projects. However, they are quickly becoming a popular residential type in cities due to its efficient land use to reach affordable price points. The affordability and improved regulations will eventually attract many sceptical customers. Luxury condominium projects currently exist in small numbers in Hoan Kiem District, Tay Ho (West Lake), and the emerging West (Cau Giay and Tu Liem). High-end and mid-range projects are generally located in the other core urban districts. With the annexation of Ha Tay Province in 2008, Hanoi continues its decentralisation toward the West in My Dinh. The majority of new condominium projects are under development in Cau Giay, Ha Dong and Tu Liem districts, where there are fewer height restrictions and land is more affordable. Figure 6.1 Major Condominium-For-Sale Clusters PAGE 37 A-43