CBRE VIETNAM DA NANG www.cbrevietnam.com October 211 Economics Quick Stats Hot Topics Change from last VIETNAM Current Yr. Qtr. Real GDP Growth 5.76% Implemented FDI Exports Imports $2.9 bil $27.7 bil $27.9 bil CPI (average) 18.16% Tourism (arrivals) Base Rate 9% 1.35 mil Exchange Rate (e-o-p) 2,628 *The arrows are trend indicators over the specified time period and do not represent a positive or negative value. ECONOMY: Da Nang s GDP growth in the first nine months again outpaced HCMC and HN OFFICE: Vacancy down 5.6 pp q-o-q RESIDENTIAL: Market still quiet in Q3 RETAIL: New retail format, the modern market, opened catering to local demand HOTEL & RESORTS: New flights from DN- to Kuala Lumpur announced by Air Asia, expected to push international arrivals to Da Nang SERVICED APARTMENTS: Buy-to-let apartments more active that proper serviced apartments LAND PLOTS: Only approx 1, plots launched, significantly down from the previous two quarters VIETNAM The 211 economic picture is emerging towards the end of the third quarter. It is a challenge to the Government to reach the target of 6% y-o-y GDP growth this year as the figure for first nine months stood at 5.76% y-o-y. While inflation escalated to 22.42% y- o-y in September, with an increase in the first nine months of 18.16% y-o-y, timely monetary controls showed obvious results in the m-o-m CPI from July to September. The CPI is still rising, but at a slower rate than in the first and second quarters. A positive note is implemented FDI, with a slight rise of 2% y-o-y in first nine months. The third quarter alone saw an increase of 9.4% y-o-y. The central story of the third quarter is more focused on interest rates, raising the concern of every banker, manufacturer and individual. The Government implemented stricter control on the existing interest rate cap under Directive No.2/TT-NHNN promulgated by the State Bank of Vietnam. The SBV also removed the fixed loan/deposit ratio on banking institutions, leaving more room for banks to offer loans. The foreign currency reserve ratio increased 1 percent, aiming to stabilising monetary policy. The market, therefore, saw some initial signals with interest rates declining in late September. Trade Balance of Da Nang City 75, 65, 55, 45, 35, 25, 15, 5, (5,) (15,) DA NANG CITY Da Nang s GDP growth rate in the first nine months of 211 again outpaced that of Hanoi and HCMC. Growing at 13.1% y-o-y, Da Nang s GDP growth was 3.1 percentage points higher than HCMC and 3.7 percentage points higher than Hanoi. The first nine months also saw US$3.6 billion invested in 198 FDI projects. The well known Vietnam Singapore Industrial Park (VSIP) signed the MoU to do the feasibility study for a 1,2 hectare integrated township in Quang Ngai Province. This is expected to attract large multinationals to Vietnam s central coast due to VSIP s established reputation in the market. The Da Nang People s Committee announced a five year plan of cooperation with IBM to develop modern IT infrastructure in Da Nang. The agreement includes consulting and construction, which will help Da Nang grow into a modern and high tech city, which will also improve the standard of living for city residents. Among other manufacturers and industries considering Da Nang, EADS, the European aerospace and defense manufacturer is looking to develop an industrial park in the city. Import Turnover (US$ millions) Exports Turnover (US$ millions) Trade Balance(US$ millions) 21 22 23 24 25 26 27 28 29 21 Q3/211 211, CBRE Vietnam
OFFICE MARKET Asking Rents (US$ psm per month) Grade A Grade B Grade C Grade A Grade B Grade C GRADE A GRADE B GRADE C TOTAL Number of buildings 1 6 2 27 NLA (sm) 6,314 35,823 4,256 82,393 Vacancy rate (%) 24.% 2.2% 27.4% 24.4% Q-o-q change (pts) 8. pp -8. pp -9.1 pp -5.6 pp Y-o-y change (pts) -25. pp -34.9pp -3.9 pp -21. pp Average asking rent (US$ psm per month) $19. $14.58 $11.24 $12.31 Q-o-q change (%).% 1.1 % 9.2 % 8.8 % Y-o-y change (%) 5.6 % 2.9 % 22 % 1.4 % 8 7 6 5 4 3 2 1 19 17 15 13 11 9 7 5 Vacancy Rate (%) Q1/9 Q2/9 Q3/9 Q4/9 Q1/1 Q2/1 Q3/1 Q4/1 Q1/11 Q2/11 Q3/11 Q1/9 Q2/9 Q3/9 Q4/9 Q1/1 Q2/1 Q3/1 Q4/1 Q1/11 Q2/11 Q3/11 Grade A office rents in Da Nang were flat in the third quarter remaining at US$19 psm. Rents in Grades B and C were up. Grade C rents are up a dramatic 22% y-o-y, while still rising a hefty 9.2% q- o-q. Grade B rents rose a similar percent q-o-q, 1.1%, but were up little compared to last year, an increase of only 2.9%. Rents in the fourth quarter are expected to be flat as landlords try to capatalise on the declining vacancy rates to continue to fill their buildings. While Grade A vacancy is up 8 percentage points q-o-q, vacancy has declined a dramatic 25 percentage points y-o-y. Vacancy in Grades B and C, as well as overall vacancy, is down on both a q- o-q and y-o-y basis. Market practice in Da Nang is for landlords to quote rents on the net area, including the service charge. This is different from the market practice in HCMC where Grade A office rents are quoted on the gross area and excluding the service charge. Compared to Grade A office rents in HCMC, Grade A office rents in Da Nang City are 62% lower or nearly one-third the cost to lease office space in HCMC. There were no new buildings completed in the third quarter, but one building was remodeled to provide additional office space, adding an additional 96 sm to supply. There is no additional supply expected in the fourth quarter of 211, and the addition of new supply is expected to be slow through the next four quarters due to slower construction progress. Some tenants are looking for shophouses to use for their offices due to the higher rents in proper office buildings, although the supply of shophouse space is limited with high shophouse occupancy in the CBD. 211, CBRE Vietnam MarketView DA NANG October 211
RESIDENTIAL FOR SALE MARKET Condominium Supply (units) Second Home Villas Sold Rate (%) Opening supply Change in quarter LUXURY HIGH-END MID-END TOTAL Total supply (projects) 3 4 4 11 Total supply (units) 352 946 1,14 2,42 New launch (units) Average asking price (US$ psm) 2,936 1,87 942 Q-o-q change (%) 1.% 1.%.% Y-o-y change (%).%.%.2% Average sold rate (%) 73.% 35.4% 4.9% Q-o-q change (pp).pp.6pp.5pp Y-o-y change (pp) -6.1pp 7.8pp 14.2pp 6 5 4 3 2 1 9 75 6 45 3 15 Q1/9 Q3/9 Q1/1 Q3/1 Q1/11 Q3/11 Q1/9 Q3/9 Q1/1 Q3/1 Q1/11 Q3/11 CONDOMINIUMS There was no new condominium supply, nor were there any launches, in the third quarter of 211. Similar to the residential markets in Hanoi and HCMC, the market in Da Nang continues to be impacted by waning consumer confidence, high inflation and reduced access to capital. Luxury condominium prices appreciated slightly to US$2,936 psm, a rise of 1% q-o-q. Prices in the high end segment also increased by 1%, rising to US$1,87 psm. While developers are raising their prices, this is being offset by the discounts being offered to stoke sales. The majority of sales in the review quarter came from projects which exhibited good construction progress. The sold rate of luxury condos was flat, while both high-end and mid-end sold rates rose less than 1 percentage point q-o-q. As reported in the first quarter of 211, developers are looking to diversify their products by converting from offering strict condominium sales to fractional ownership in a condotel format. The first condotel project in Da Nang is expected to be launched in the fourth quarter of 21, giving buyers more options, while offering management an opportunity to increase future occupancy. SECOND HOME VILLAS There was no additional supply of second homes in the third quarter. The Empire resort, a 51 hectare project, broke ground in July. This project, with construction expected in two phases, will include a 5-star hotel, and second home villa and apartment components. The overall villa sold rate reached 53.8% in the third quarter, which is an increase of.5 pp q-o-q, but a decrease of 1.3 pp y-o-y. Developers are being more careful in the recently tough market, scaling down available unit sizes and adding more services to more directly meet market demand. 211, CBRE Vietnam MarketView DA NANG October 211
RETAIL RETAIL & SERVICED APARTMENT MARKETS SHOPPING CENTRES SUPERMARKET TOTAL Total supply (GFA, sm) 45,539 53,7 77,239 New supply (GFA, sm) 4,1 4,1 Average asking rents (US$ psm per month) 7 6 5 4 3 2 1 $27.46 Q-o-q change (%).9% Y-o-y change (%) -2.7% Vacancy rate (%) 11% Q-o-q change (pp) Y-o-y change (pp) 25 2 15 1 5-11 pp 7 pp Retail Vacancy Rate (%) Q1/9Q2/9Q3/9Q4/9Q1/1Q2/1Q3/1Q4/1Q1/11Q2/11Q3/11 Serviced Apartment Average Asking Rent (US$ psm per month) Grade B Grade C Q1/11 Q2/11 Q3/11 SERVICED APARTMENT RETAIL Da Nang Square came online in the third quarter. This modern market format, adding 4,1 sm to supply, brings a new option for city residents to engage with more modern retail formats. Da Nang Square is a hybrid of a traditional market, with many individual stalls, but similar to a more modern shopping centre with improved services such as air conditioning. Residents of Da Nang overwhelmingly tend to shop in wet markets, or shophouses, and less so in modern retail formats. While this is expected to change significantly in the future, a shift is beginning. Not only did Da Nang Square open in the review quarter, icenter, an authorised Apple retailer, also opened. As in other cities throughout Vietnam, inflation is depressing retail sales with inflation weighing heavily on consumer sentiment. SERVICED APARTMENTS GRADE A GRADE B GRADE C TOTAL Total projects 3 1 4 Current supply (units) 13 16 146 Vacancy rate (%) 54.9% 6.3% 35.6% Q-o-q change (pp) 5.4 pp -6.3 pp 2.1 pp Average asking rents (US$ psm per month) $ 19.18 $8.61 $16.54 Q-o-q change (%).2%.2 %.1% There was no new serviced apartment supply in the third quarter of 211. Grade B vacancy increased 5.4 percentage points to 54.9% compared to the previous quarter. Grade C vacancy decreased 6.2 percentage points to 6.3% in the review quarter. Average asking rents increased a substantial 8.9% in Grade B properties and an even larger 17.4% in Grade C properties. The outlook for Da Nang serviced apartments is improving with the government being increasingly amenable to the growth of the industrial sector in the city, which is a large driver of serviced apartment demand. Leasing at buy-to-let apartments has been more active in the third quarter, as some of these projects have prime locations when compared to serviced apartment projects. 211, CBRE Vietnam MarketView DA NANG October 211
Thuy Tu Lien Chieu Vinh Man Quang Son Tra My An Ngu Hanh Son Cam Le LAND PLOT MARKET Total Supply (Plot) Price Range By Submarkets (VND psm) Opening supply Change in supply Average price NORTHWEST EAST SOUTH TOTAL Number of projects 12 7 7 26 Total supply (plots) 6,835 1,413 3,813 12,61 New supply (plot) 63 417 1,2 Average price (VND per sm) VND3.8-15 mil VND8.5 46.8mil VND4.85-17mil Change (%) -5% to -2% -3% to % -5% to -2% 15 12 9 6 3 5,, 45,, 4,, 35,, 3,, 25,, 2,, 15,, 1,, 5,, Q1/9 Q3/9 Q1/1 Q3/1 Q1/11 Q3/11 Compared to the previously hot land plot market in Da Nang, developers were much more careful in the third quarter, with a fewer number of plots launched considering the more difficult real estate market. Most of the new projects this quarter were launched in September, and planned to launch at the beginning of October when the consumer confidence is expected to be higher. New supply in the third quarter includes nearly 1,2 plots from two new projects and two existing projects. When compared to last quarter, average prices were flat or dropping slightly in some locations. Although there are some points for the land plot market, the average price and number of transactions in the next two quarters is not expected to go up due to the economic situation and the abundant supply of land plots. Compared to Hanoi and HCMC, the price of Da Nang land plots is less expensive. The Da Nang primary land plot market still has a high potential as this sector is expected to see high capital gains in the future. The land plot market is expected to expand to the south and southwest of the city as these areas have an abundant supply of available land. There are more than 4, additional plots waiting to be launched, although some developers are reportedly looking to build villas and target endusers or long-term investors. 211, CBRE Vietnam MarketView DA NANG October 211
$15 $125 $1 $75 $5 $25 $ 9% 75% 6% 45% 3% 15% % HOTEL & RESORT MARKET Average Daily Rate (US$/room/night) Occupancy (%) 5-star 4-star Q1/8Q3/8Q1/9Q3/9Q1/1Q3/1Q1/11Q3/11 5-star 4-star Q1/8Q3/8Q1/9Q3/9Q1/1Q3/1Q1/11Q3/11 5 STAR 4 STAR 3 STAR TOTAL Number of hotels 6 3 31 4 Total supply (room) 1,252 563 1,874 3,689 New supply (room) 272 272 Average occupancy rate (pp) 53 % 7 % Q-o-q change (pp).4 pp 2.6 pp Y-o-y change (pp) 1.1 pp 6.9 pp Average daily rate (US$/room/night) $127.8 $71.3 Q-o-q change (%).3 %.2 % Y-o-y change (%) 26.9 % 4 % In the third quarter of 211, Da Nang welcomed 715,368 tourist arrivals, a 7.9% q-o-q decrease. Of this, the number of domestic visitors was 612,853, a 1.4% q-o-q decrease. This q-o-q decline is normal and seasonal as August and September are the beginning of the low season. In the first nine months of 211, Da Nang welcomed 1,928,295 tourist arrivals, a 33% y-o-y increase. The ADR of 5-star hotels reached US$127.8, a.3% q-o-q and 26.9% y-o-y increase. The ADR of 4-star hotels increased.2% q-o-q and 4% y-o-y. 4-star hotel occupancy increased.4 pp q-o-q while 5-star occupancy increased 2.6 pp q-o-q. New supply includes 272 new 4-star hotel rooms coming online in the third quarter from the Mercure Da Nang property. An increasing number of international operators are entering the Da Nang market, including Renaissance, a Marriot brand, and Intercontinental Hotels Group with a Crowne Plaza property. Hyatt is expected to open their project in the fourth quarter. Significant news late in the third quarter comes from international low cost carrier Air Asia. Starting in the fourth quarter, Air Asia will open non-stop flights between Da Nang and Kuala Lumpur. This greatly improves international access between the two cities, and opens Da Nang up to Air Asia s extensive route network not only in Asia, but also in Europe and Australia. In addition, talks are underway to increase the number of flights to Singapore from the current four, to five flights per week. 211, CBRE Vietnam MarketView DA NANG October 211
MarketView DA NANG CITY For more information regarding this MarketView or to find out more about any aspect of our services, please contact: CB Richard Ellis (Vietnam) Co., Ltd. RESEARCH & CONSULTING Marc Townsend, Managing Director t. 84 8 3824 6125 e. marc.townsend@cbre.com Nguyen Dac Trung, Branch Manager m. 84 918 278 274 e. trung.nguyen@cbre.com Central Business District (CBD) The Central Business District in Da Nang is Hai Chau District, the commercial, administrative and tourism centre. Interest Rate The base rate set by the SBV is used as a reference by other banks and financial institutions. The discount rate is the interest rate that the SBV charges member banks for short-term loans via discounting commercial paper or other debt instruments. The refinancing rate is the interest rate that the SBV charges on loans to member banks. Gross Floor Area (GFA) Gross Floor Area includes all areas contained within the external walls at each floor level and the whole thickness of the external walls. In general, mechanical and electrical services rooms, refuse chambers and rooms, water tanks, car parking floors and all lifts and staircases passing through these floors are excluded from the Gross Floor Area calculation. Net Leasable Area (NLA) In a building or project, floor space that may be rented to tenants; area upon which rental payments are based. It generally excludes common areas and space devoted to the heating, cooling, and other equipment of a building Da Nang City Map Rent Rent is quoted as the average asking rent, without accounting for any incentives. Rents are stated in US$ per square metre (psm) as well as in those terms gross or net, inclusive (including management fees and/or property taxes) or exclusive (excluding management fees and property taxes) that are customarily employed in the respective sector. Rents are quoted on the following basis: Office: Asking rents, NLA, exclusive of VAT and service charges Retail: Asking rents, NLA, exclusive of VAT and service charges Serviced Apartments: Asking rents, NLA, inclusive of VAT and service charges Residential Supply Existing supply : is the total number of units that have been handed over for occupation. New launch : the number of units that were released to the market by developers (official start of sales for a project) in the review quarter. All units in each development are included in the calculations, however, the developer may divide sales into numerous phases and thus not all units may come online at launch date. 211 CBRE Vietnam. This report has been prepared in good faith and with due care by CBRE Vietnam. 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 CBRE clients, and cannot be reproduced without prior written permission of CBRE.