P R E S S R E L E A S E FOR IMMEDIATE RELEASE Tuesday, September 30, 2014 CBRE (Vietnam) Co., Ltd Unit 1201, Me Linh Point Tower 2 Ngo Duc Ke, District 1 Ho Chi Minh City, Vietnam T 84 3 824 6125 F 84 3 823 8418 www.cbrevietnam.com For further information: Marc Townsend Managing Director marc.townsend@cbre.com Tel: +84 8 3824 6125 CBRE (Vietnam) Co., Ltd. Dung Duong Associate Director Research & Consulting dung.duong@cbre.com Tel: + 84 91 3381 118 Ngoc Le Senior Manager Research & Consulting ngoc.le@cbre.com Tel: + 84 908 6666 35 CBRE RELEASES 2014 QUARTERLY REPORT HIGHLIGHTS FOR HO CHI MINH CITY MARKET Ho Chi Minh City, September 30, 2014 Vietnam s gross domestic product grew 5.62% in the first nine months of 2014. Coupled with accelerating foreign investment, this helped to boost manufacturing and exports and helped the country to counter low credit growth. According to the State Bank of Vietnam, by the end of August 2014, credit to the real estate market had expanded by 9.85% compared to the beginning of this year, higher than the credit growth for the whole economy (5.82%) and other sectors. However, credit growth projected for the first eight months is only at 4.5 y-o-y, half of the target for 2014 despite government efforts in gradually lowering lending rates from in to 13% currently. In a consumer survey by ANZ Roy Morgan, Vietnam consumer confidence followed closely the trend of the stock market (VNIndex), with both increasing since January. Almost 6 of responders expect economic conditions in Vietnam and their personal family situation to improve next year. A recovery in consumer confidence may give some grounds for optimism in terms of credit growth for the last three months of the year. Apart from the recovery in consumer confidence, the performance of the economy is supported by investment in the manufacturing sector, which remains the most significant sector for foreign investment, accounting for almost 7 of total FDI. South Korea has overtaken Japan as the biggest foreign investor. Samsung has invested nearly US$8 billion in Vietnam to date and Lotte Mart plans to double its current number of stores to a total of 2020. Following manufacturing, the real estate sector is ranked second in terms of a destination for FDI to Vietnam, accounting for 11%, equivalent to US$1.2 billion. Large amounts of money are expected to flow into southern realty. Large current projects include: Smart Complex by Lotte in Thu Thiem, HCMC (US$2 billion) and Amata City Long Thanh by Amata in Dong Nai Province (US$530 million). There is additional investment to ports in HCMC, which will be replaced by mixed-use projects including Saigon New Port, Khanh Hoi Nha Rong Port and Ba Son Shipyard. Residential for Sale As sales improve and buyers confidence increases, developers have become more and more confident in launching their products. Well-attended launches continued to be a feature in the third quarter of 2014 although the number of new launches showed a q-o-q decline of 8.8% owning to the inclusion of ghost month July 27th - August 24th. With 3,104 units launched, launch supply in the review quarter increased significantly by 95.8% compared to the same period last year. Most projects were launched in July and September as "ghost month" mainly occurred during August.
Page 2 Thanks to improving market conditions, prices on both the primary and secondary markets started to show tentative improvements on a q-o-q basis. Primary prices increased from 1.-4. q-o-q and 1.2%-5.4% y-oy across all segments. The most noticeable improvement was in District 2 thanks to infrastructure improvements such as metro line No. 1. Primary prices at some projects edged up 2%-5% compared to the previous quarter while payment terms were shortened. The same trend was reflected in the secondary market although there was variation in the level of price changes across segments. The increase in tenants looking for buy-to-let options supported high-end condominium sales prices. In general, the high-end segment showed a more positive picture than the other segments as resellers found it easy to find tenants and were confident about capital value increases. In addition, housing is a favoured investment route for Vietnamese. Sales volume continued on an upward trend although at a slower pace than the previous quarter. Launching events were positively received, proven by the high number of attendees and deposits being placed for up to 5-7 of units. Preliminary figures showed that the sales volume increased by 8.6% q-o-q and 94.8% y-o-y to approximately 3,300 units sold. While the affordable segment continued its strong rise, the growth in highend condominiums sold was relatively modest. Buyers at high-end developments comprised a high proportion of investors (either buy-to-let or capital gain investors) who often try to avoid selling or buying houses in "ghost month". In contrast, end-users (and especially those on a limited budget) buy a house whenever they are able to obtain finance. Commenting on the market, Ms Duong Thuy Dung, Head of the Research and Consulting Department, noted: It has been a long, seven year slog with disappointments and broken promises on house delivery. However, recent positive sales results and busy launching events suggest that we have now arrived at a point where the worst of the market is behind us. Looking forward, further improvements in both prices and sales are expected given the current positive picture and support from expected lower lending rates, more targeted products and improving economic conditions. HCMC Condominiums for Sale, Price Changes 4 Primary Price Change - 2010 Secondary Price Change - - 6% 4% 2% -2% -4% -6% Source: CBRE Vietnam, 2014. Primary price: Convergent Secondary price: Divergent Luxury High-end Mid-end Affordable Office market Given that no new Grade A and B properties were completed during 2014 and demand keeps being observed in the market, vacancy levels in the Grade A and B markets were continuously reduced in the review quarter. Vacancy improvements were observed across all sub-markets both on a yearly and quarterly basis. As of the end of 2014, the Grade A and B vacancy rate decreased by 0.6 pps q-o-q and 3.6 pps y-o-y.
Page 3 Ms. Dung added: Decreasing net absorption has been recorded in the market during the last few quarters. However, this should not be interpreted as showing decreasing demand only but also an issue on the supply side. As less office space becomes available, tenants find it more difficult to find suitable leasing options. Given that Vietcombank Tower will be likely launched at the beginning of next year, it is expected that net absorption will increase as this new property will attract tenants who have been waiting to expand their workplaces or upgrade to a prime location. The office market in 2014 continued to show an improvement in average rent. Rents were either stable or increased at most buildings. Average rent showed a remarkable improvement with Grade A increasing by 3.7% y-o-y, 1.8% q-o-q and Grade B increasing by 2.2% y-o-y and being quite stable as compared to the previous quarter. Based on the number of enquiries that CBRE received in 2014, less demand came from new entrants to the market and existing tenants who wish to expand. Companies coming from US dominated the market with more than 5 of leasing enquiries. Companies providing financial or consulting services are still the most active occupiers in the market with a contribution of nearly 31% of total enquiries received. Future projects have maintained good construction progress during the quarter. Notable new supply will predominantly be located in decentralized submarkets such as District 3 (Lim Tower 2), District 10 (Viettel Office and Trade Center). Vietcombank Tower is the only notable office project located in the CBD. A large proportion of new supply will be owner-occupied. For this reason, the market will be unlikely to suffer an increasing burden from new competitors and landlords may maintain a position of strength. AVERAGE ASKING RENT (US$/sm/month) VACANCY RATE (%) GRADE B GRADE A GRADE B GRADE A 2014 2014 $35 $30 $25 $20 $15 $10 $5 $0 $0 $5 $10 $15 $20 $25 $30 $35 5 4 4 5 Source: CBRE Research, 2014 Retail In term of leasable area, more than 6 of retail new openings in the third quarter are from fashion and accessories, followed by the F&B sector with 28%. New retail entries included Marks & Spencer opening a 1,200 sm flagship store in Vincom Center B and Café Bene s first store in Dong Khoi Street, District 1. Both occupancy rates and CBD retail rents showed improvements. The average rent of shopping centres in the CBD increased 6.7% y-o-y if the Saigon Tax Trade Center is taken out of the sample. This shopping centre officially closed on September 25th, 2014 to provide space for a 40-storey skyscraper. The building is planned to have five floors and 1.5 basements for a shopping centre component with over 40,000 sm GFA.
Page 4 Non-CBD rents continued to trend downward as retail podium outlets made efforts to attract tenants. Looking forward, there are a number of future projects in decentralised areas which are expected to complete or open in the next two years including: Sunrise City Phase 2, Thao Dien Pearl and SC VivoCity. These new projects may put non-cbd rents under pressure. According to a CBRE survey, planned future retail developments in HCMC in the next two years are only 5 of the levels expected in Manila and Singapore and 12% - 15% the levels expected in Tokyo and Bangkok. This will help to support rental levels in HCMC, especially in CBD areas. HCMC Retail, Historical performance AVERAGE ASKING RENT (US$/sm/month) VACANCY RATE (%) NON-CBD 2014 110 90 70 50 30 Source: CBRE Vietnam, 2014. CBD 30 50 70 90 110 Net absorption (NLA, sm) 60,000 40,000 14% 20,000 8% - 2% (20,000) -4% Net Absorption (sm) Vacancy Rate (%) Vacancy rate (%) Serviced Apartments The third quarter of 2014 saw only one small-scale project of 14 units opening in District 2. With such limited new supply, the market started to show some improvement. Both Grade A and B achieved rents stopped their downward trend and edged up by 0.3% and 0.5% q-o-q respectively. At the end of the review quarter, Grade A rents achieved US$31.60 psm per month while Grade B achieved US$25.09 psm per month. The third quarter was the start of the new school-year and as usual, the number of Western tenants increased. In addition, it is encouraging to witness the return of deep-pocket tenants whose housing budgets range from US$6,000 to US$10,000 per month, mostly from Switzerland. The last time CBRE encountered this level of budget was four years ago. These high-budget tenants were mainly looking for villas in District 2. It is also reported that some tenants from CBD serviced apartments have started to relocate to District 2 buy-to-let options, which are obviously cheaper but comparable in terms of quality. Discussing this observation, Ms. Dung said: This explains why CBD serviced apartment operators have increased the one-bedroom rate but adjusted down the asking rents of their larger units in an effort to retain family tenants. CBRE noticed that instead of direct discounts, operators offer more benefits such as free parking, breakfast, etc. in the lease package. Compounded by no new supply in Grade A and Grade B for one year, both grades saw an improved net absorption. Therefore, the market-wide vacancy rate perfectly matched the long-term average rate. Looking forward, CBRE still expects good performance from CBD properties. It is highlighted that the top five performers are located right at the heart of the city, including: Nguyen Du Park Villas, Indochine Park Tower, Diamond Plaza, InterContinental Asiana Saigon Residences and Norfolk Mansion with their RevPAU (revenue per available unit) over US$102 per unit per night.
Page 5 HCMC Serviced Apartments, Historical performance Rents (US$/sm/month) $40 $35 $30 $25 $20 Grade A Achieved Rent Grade B Achieved Rent Source: CBRE Vietnam, 2014. 25% 15% 5% Current Vacancy (%) Long-term Average END 2014, CBRE, Group Inc. CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. About CBRE Group, Inc. CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world s largest commercial real estate services and investment firm (in terms of revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.