Savills - Ha Noi Market Brief Q3 2009 ENG

Ha Noi, Vietnam Q3/2009

For further information, please contact:

vietnam – ho chi minh city Brett Ashton Managing Director +84 8 3823 9205 – Ext.116 [email protected]

vietnam - hanoi Mathew Powell Branch Director +84 4 3946 1300 – Ext.105 [email protected]

corporate website www.savills.com

address Savills Vietnam Ltd – Ho Chi Minh City 18/F, Fideco Tower 81-85 Ham Nghi , District 1 Ho Chi Minh City Vietnam T: +84 8 3823 9205 F: +84 8 3823 4571

address Savills Vietnam Ltd – Hanoi 13/F Pacific Place 83b Ly Thuong Kiet, Hoan Kiem Hanoi Vietnam T: +84 4 3946 1300 F: +84 4 3946 1302

This document is prepared by Savills for information only. Whilst reasonable care has been exercised in preparing this document, it is subject to change and these particulars do not constitute, nor constitute part of, an offer or contract, interested parties should not only rely on the statements or representations of fact but must satisfy themselves by inspection or otherwise as to the accuracy. No person in the employment of Savills has any authority to make any representations or waranties whatsoever in relation to these particulars and Savills cannot be held responsible for any liability whatsoever or for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills.© Savills Vietnam Co Limited. 2009

Office for Lease

Grade B, 267,995 ,

55%

Grade A, 105,275 ,

21%Grade C, 119,305,

24%

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Grade A Grade B Grade C0

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Occupancy rate (LHS) Average rent (RHS)

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Q4 2009 2010 2011 2012

m2

Current supply New supply

Supply trends Three new office buildings namely Plaschem (Long Bien Dist.), CEO Tower (Tu Liem Dist.) and Handi Resco Tower (Ba Dinh Dist.) coming online in Q3 2009 increased the total supply of Grade A, B & C offices to 493,000 sq m, consisting of 12 Grade A; 30 Grade B and 32 Grade C buildings. Thirty-two Grade C office buildings included since Q3 2009 added nearly 120,000 sq m of office space to the total current supply (*) Figure 1: Current supply of office space by grade, Q3 2009

Source: Savills Research and Consultancy, Q3 2009

(*) Note: In Q3 2009, Savills updated the grading of Office for lease report, which led to changes in the number of Grade A, Grade B and Grade C office buildings.

Market performance Average rent and occupancy rate in Q3 2009 saw a further softening, though less dramatic. Regarding average rent, Grade A and Grade B office buildings continued to experience a downward trend, reflected by a q-o-q decline of 4.5% and 2% respectively. Regarding occupancy rate, Grade A picked up by 1% q-o-q while Grade B dropped by 9% q-o-q due to the influx of new supply.

Figure 2: Performance of the Ha Noi office market by grade

Source: Savills Research and Consultancy, Q3 2009

Grade C in Q3 2009 posted 78% in the occupancy rate with US$17 per square metre per month in the average rent.

Demand trends Demand of both Grade A and Grade B, as measured by net absorption, bounced back in Q3 2009 due to positive signals of the global economic recovery. However, it is observed that new businesses are still cautious and less willing to take risks when making a decision to enter new lease contracts. With overall leasing enquiries remaining at low levels, landlords concentrate on maintaining their current tenants within their buildings by negotiating lease extensions well before expiry of the existing contracts, and by offering competitive rents with attractive packages of incentives. Besides, Grade C office buildings are becoming another alternative for tenants, especially in the present economic context. . Outlook Savills estimates that over 1.1 million sq m of office space in all grades, from around 60 projects is expected to enter the market in the next 3 years. It is estimated that a total of 145,000 sq m of office space is set to launch in the market from now to the end of 2009. Figure 3: Stock and new supply, Q4 2009 - 2012E

Source: Savills Research and Consultancy, Q3 2009 In 2010 alone, 354,000 sq m of office space is set to launch in the market.




vietnam - hanoi Matthew Powell Branch Director +84 4 3946 1300 – Ext.105 [email protected]




This document is prepared by Savills for information only. Whilst reasonable care has been exercised in preparing this document, it is subject to change and these particulars do not constitute, nor constitute part of, an offer or contract, interested parties should not only rely on the statements or representations of fact but must satisfy themselves by inspection or otherwise as to the accuracy. No person in the employment of Savills has any authority to make any representations or waranties whatsoever in relation to these particulars and Savills cannot be held responsible for any liability whatsoever or for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills.© Savills Vietnam Co. Limited. 2009

Retail

Supply Trends

Savills classifies the four main retail groups as follows:

1) Shopping centre/ shopping mall, Department Store and Hypermarket, 2) Supermarket (with area of 300 sq m or more), 3) Wholesale centre, and 4) Retail podium.

Vincom Galleries is the only new shopping centre coming online in Q3 2009 with a net area of nearly 15,000 square metres. In Q3 2009, the total retail space is about 360,000 square metres, contributed by ten shopping centre/ department store/ hypermarket, seventy-eight supermarkets and electronics marts, two wholesale centres, and twelve retail podiums. The CBD area performed quite well with a stable rent and full occupancy most the time, while inappropriate market positioning of projects has made it difficult for suburban and secondary areas to operate effectively.

Figure 1: Market share of retail area by location, Q3 2009

0%10%20%30%40%50%60%70%80%90%

100%

Q1 2009 Q2 2009 Q3 2009

CBD Secondary Suburban

Source: Savills Research & Consultancy, Q3 2009 Figure 2: Market share of retail area by type, Q3 2009

Retail Podiums5%

Department store8%

Shopping center16%

Hypermarket24%Supermarkets

31%

Wholesales Centres

16% Source: Savills Research & Consultancy, Q3 2009

The CBD is still on top in terms of rents, from approximately US$40 to US$150 with occupancy rate of almost above 90 percent. Right behind the CBD is the secondary area with average rents varying from US$20 per square metre per month to a very high US$120 per square metre per month. Rents in suburban area are relatively low, from US$7 to US$50 per square metre per month. Demand Trends Despite the economy slowdown, Vietnamese retail sales of goods and services have maintained growth rates of about 20 percent. Savills expects that the demand for retail space will increase slightly as economy recovery is remaining on track. However, high CPI might once again threaten spending on non-essentials, negatively affecting the retail sector. Future Outlook Figure 3: Stock and New Supply, Q4 2009 - 2012

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Source: Savills Research & Consultancy, Q2 2009 Figure 3 shows that there will be about 11,200 square metres possibly coming on line in Q4 2009. Projects that expect to open in Q4 2009 include Tam Da Plaza (249A Thuy Khue) and M5 building (Nguyen Chi Thanh Street). There will be approximately 82,000 square metres of retail space entering the market by 2010 due to the completion of some major projects such as Cua Nam, Hang Da market, Ha Noi Plaza and Sky City Tower. By 2011, Ha Noi is expected to have total new supply of retail area of about 425,000 square metres. The majority of future supply is located in the secondary area.









Hotel

Supply Trends The hotel market supply has increased from 5,576 rooms to 5,678 rooms in Q3 2009 due to the entering of the 4-star Mercure Ha Noi La Gare Hotel that provides 102 rooms. The whole city currently has ten 5-star hotels accounting for 2,983 rooms and six 4-star hotels including 1,083 rooms. Revenue per available room (RevPAR), Q3 2008 – Q3 2009

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5-star 4-star 4 and 5-starRevPAR (US$)

Source: Savills Research & Consultancy, Q3 2009 (*)The average room rate is the estimated average room rates exclusive of 5% service charge and 5% VAT. The industry performance decreased continuously in Q3 2009 due to the global economic crisis and H1N1 flu. The RevPAR for 5-star hotel sector has shown a significant decline at about 10% quarter on quarter. RevPAV for the 4-star segment is unchanged from Q2 2009. The average room rate of the 5-star hotel sector decreased 10% quarter on quarter. The average occupancy of the segment in Q3 2009 stayed at 51% as in the last two quarters, which was the lowest rate in the last four years. The average rental rate of the 4-star sector continued to decrease by 5% against Q2 2009 and about 22% compared to the same period last year. Meanwhile, the average occupancy increased from 52% in Q2 2009 to 54% in Q3 2009.

Demand Trends The demand of the hotel market across all grades decreased slightly in Q3 2009 due to a reduction in the number of international visitors to Ha Noi. There were about 76,000 international arrivals to Ha Noi in September 2009, down by 9.6% against last month and reducing by 21.4% compared to September 2008. The total number of arrivals in the first nine months was about 745,000, down by 19.8% compared to the same period last year. The global crisis and H1N1 epidemic still are the main reasons leading to the reduction. Outlook Savills estimates that about 1,180 new hotel rooms will enter the market by the year 2010 and nearly 1,000 of those rooms will be in the Tu Liem and Cau Giay districts in the western suburbs of Ha Noi. It is noted that the Dan Chu and Oriental Pearl projects have been delayed until 2010. Existing Stock and Future Supply

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Existing stock New supplyNo. of rooms

Source: Savills Research & Consultancy, Q3 2009

The total number of international visitors to Viet Nam in Q4 2009 might decline compared to Q4 2008, in spite of the second step of the “Impressive Viet Nam” campaign being extended until the end of 2009 and the government’s decision to spend more to promote the program. This is because the tourism industry has not recovered yet and Viet Nam tour prices are likely higher than other countries in Asia area.









Apartment for sale

Supply Trends The total number of apartments available for sale from projects that are currently active in Q3 2009 is about more than 1,000 units. The majority of primary supply is concentrated in Tu Liem, Dong Da and Hai Ba Trung districts.

Performance of the primary market (All Types) in Q3 2009

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Tu Liem Dong Da Hai Ba Trung Ba Dinh Hoan Kiem

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Primary supply (LHS)No. o f apartments so ld in Q3 2009 (LHS)Average primary asking price excl. VAT (RHS)

Source: Savills Research & Consultancy, Q3 2009 The number of successful transactions in the overall primary market in Q3 2009 was lower than the previous quarter. Only around 400 apartments sold in Q3 2009 accounting for nearly 38% of the primary market in comparison to 610 apartments sold in Q2 2009. That is probably due to the lack of diversification of products in this market. The overall average primary asking price in Q3 2009 is about US$1,830 per square metre, which was an increase of 5.5% against Q2 2009. The secondary market seems to have performed better than Q2 2009. The average secondary asking prices have increased on all twelve studied districts, by 15.6% on average against Q2 2009. In this market, asking prices range from US$660 - US$4,200 per square metre. Demand Trends Current demand in Q3 2009 in Ha Noi has not met with supply. Only about 435 apartments are sold in the primary market and the upward trend on prices in the secondary market against Q2

2009 had a definite impact on buyers’ decision. The housing demand from speculators was still low in Q3 2009 due to the stock market’s rapid recovery in the second quarter and continuing to grow hotter during the third quarter of 2009. This causes investors to focus much more on the stock market than the property market. Outlook From the period Q4 2009 up to 2012, it is estimated that there will be at least 10,000 apartments launched in the market. Of which, nearly 34% of the apartments belongs to Tu Liem District, and approximately 30% are located in Cau Giay District. Despite difficult domestic economic conditions foreseen in the short-term, the fundamentals for residential property demand in Ha Noi should persist. However, delays and cancellations in implementing projects may happen accordingly and, therefore, supply forecasts may require a downward revision. The primary market in Q4 2009 is expected to receive a new supply of nearly 2,000 units. Future supply from Q4 2009 up to 2012 by district

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Tu Liem Cau Giay Dong Da Hoang Mai Ba Dinh Thanh Xuan Long Bien Hai BaTrung

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Source: Savills Research & Consultancy, Q3 2009 Savills believes that Q4 2009 will see no considerable change in primary asking price of apartments of all grades against Q3 2009. However, prices and performance in the secondary market may be impacted, partly due to the enforcement of personal income tax levied on real property transfers since the end of September 2009.









Serviced Apartment

Supply Trends

The total supply of the serviced apartment market in Q3 2009 increased to more than 219,000 square metres by the addition of 100 units from Hanoi Fraser Suites building, located at 51 Xuan Dieu Street, Tay Ho District. Among these 100 new units, there are two penthouses introduced to the serviced apartment market for the first time.

Currently, forty-one studied buildings in seven districts of Ha Noi provide nearly 2,200 units for tenants. Supply stock is classified into studio, from 1-bedroom to 6-bedroom and penthouse. They range in size from more than 40 square metres to 560 square metres. Market performance of Ha Noi Serviced Apartment, Q3 2008 – Q3 2009

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Source: Savills Research & Consultancy, Q3 2009

*Estimated average achievable rent and service charge, exclusive of VAT, on a net area basis.

Since Q3 2008, the serviced apartment market has witnessed continuous reductions of the average rent rate. Q3 2009 showed a significant quarter on quarter reduction of 4.8%, equivalent to US$1.2 per square metre per month.

The average occupancy rate of the serviced apartment market in Q3 2009 declined to 88%, down 3% compared to Q2 2009. It seems this reduction has been caused by the addition of about 100 units, which is equal to around 4% growth of supply stock against Q2 2009.

Demand Trends

Generally, demand of the Ha Noi serviced apartment market reduced across all three grades compared to Q2 2009. It is likely due to the shift of a certain amount of expatriates to the secondary lease market from the owners’ apartments.

The serviced apartment demand in the Ha Noi market is mainly from expatriates working for embassies, international NGOs and foreign companies. Although the signal of economic recovery has been seen in many countries in the world such as UK, America, etc, there may continue, in the short-term, to be a slight decrease in demand. International companies are still facing difficulties due to the lasting economic crisis and are still weighing whether to return to Viet Nam for doing business long-term. Outlook Stocks and New Supply, 2009E Future

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Source: Savills Research & Consultancy, Q3 2009 In Q4 2009, new supply (10 units) is expected from Hanoi Fraser Suites in Tay Ho. By 2012, another seven serviced apartment projects are scheduled to complete and provide more than 1,200 units for the market.

Vinh Tuy Bridge has just been officially put into operation. Nhat Tan Bridge is planning to be completed by 2012. There are many large on-going infrastructure projects connecting the western zone of Ha Noi (previously Ha Tay) to the city centre, such as the extension of Le Van Luong Road and Metro Cat Linh – Ha Dong. All such projects might have positive a impact on the serviced apartment market in the future.

Business

Savills - Ha Noi Market Brief Q3 2009 ENG