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Vietnam building revival may boost supply, cut office rents
A revival in Vietnamese construction may create oversupply of offices and reduce rents, helping companies to expand, according to research by Dragon Capital.
An increase in the central bank’s benchmark interest rate to 14 percent in June 2008 as well as rising cost of raw materials last year delayed construction projects, Dragon Capital, a Ho Chi Minh City-based investment firm that manages US$1.5 billion, said in a note to clients.
“With those factors much moderated, new building has recommenced and there will be a heavy supply of office space entering the market in the next two years,” Dragon said in a monthly note to investors. “Since hyper-inflated office rents had impeded corporate growth, lower rates will be welcome.”
Construction growth stalled last year, slowing economic expansion to 6.2 percent, the weakest pace in nine years. The State Bank of Vietnam lowered borrowing costs six times from October to January, and has kept its key rate at 7 percent since then.
A revival in building projects may help Vietnam meet its growth target of 5 percent this year. The economy grew 3.9 percent in the first half of 2009, according to the General Statistics Office in Hanoi.
Rents in shopping centers in Ho Chi Minh City fell 3 percent in the second quarter from the first, according to the Vietnam unit of CB Richard Ellis Group Inc., the world’s largest real-estate broker. Costs of retail space outside the central business district in the country’s largest city declined by as much as 10 percent, CBRE said.
City center rents
“The rents can be a killer, so the fact that the prices have stopped increasing is very helpful,” said Ly Qui Trung, chief executive officer of Pho 24 Corp., which runs a nationwide chain of restaurants serving Vietnam’s popular noodle soup, and also has branches in Singapore and Australia.
“For the stores in the city center, the profit margins have become smaller and smaller,” Ho Chi Minh City-based Trung said.
The rebound in the property market is moderating a decline in imports in Vietnam, according to Dragon. Imports declined 28 percent year-on-year through August, after dropping 45 percent through March, according to the General Statistics Office in Hanoi.
“One major contributor to imports is the property sector,” Dragon said in the note.
thanhnien, Bloomberg
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