What future for the serviced apartment market in Hanoi and Ho Chi Minh City?

According to Savills Vietnam, the supply of serviced apartments in Hanoi increased significantly at 20% year-on-year, rents continued to decline, the occupancy rate of the whole market was stable year-on-year at 69%. Due to the impact of travel restrictions due to the Covid-19 epidemic, foreign workers - the main source of demand for serviced apartments have not been able to return to Vietnam to work.

According to Colliers Vietnam, in the second quarter, there was no new supply of serviced apartments in Ho Chi Minh City, and some projects are extending their completion time due to difficulties during the pandemic. In Hanoi, although there is no new supply of serviced apartments, there are many upcoming projects. Major projects such as the Gateway Tower project, the first serviced apartment building in Vinhomes Smart City (Nam Tu Liem, Hanoi) have caused a stir among rental real estate investors. In addition, CapitaLand has just acquired a 364-unit serviced apartment project in the west of Hanoi and will be named Somerset Metropolitan West Hanoi. There is also The Heaven serviced apartment building located in Starlake Hanoi urban area, which will provide 317 luxury apartments in the next few years.

The pandemic has severely affected the rental property market, including serviced apartments. The past few quarters have recorded fewer tenants and many mid-and high-end serviced apartments are having high vacancy rates. Currently, guests are mainly long-term guests, a few short-term guests due to travel restrictions.

In Ho Chi Minh City, serviced apartment rental prices continuously recorded a decrease in the average asking price, although the price of 2020 has recorded a decrease of up to 30%. Specifically, the average asking price in the Grade A segment is around 26.7 USD/m2/month and 25 USD/m2/month for Grade B, down 11.7% and 1.97% respectively compared to the previous quarter. 1. Occupancy rate decreased by 10-20% QoQ in both segments. In addition, many buildings have closed or converted into isolation facilities in response to the pandemic. Serviced apartments in Ho Chi Minh City are also facing stiff competition with rental apartments due to reasonable prices.

In Hanoi, serviced apartment rents continuously recorded a decrease in average asking rent in the second quarter. The average asking price in the Grade A segment decreased by 6 - 8 USD/m2/month and 3 - 5 USD/m2. /month for the Grade B segment. The average occupancy rate decreased by 15 - 25% compared to the previous quarter. Facing that situation, motel owners have proactively taken measures to support tenants such as cutting rent, electricity, water bills, and associated services to increase rental capacity through the pandemic.

However, a recent report by Savills Vietnam on the Hanoi market has shown positive signals in this segment.

Specifically, the supply of serviced apartments in Hanoi reached 5,500 units, a sharp increase of 20% year on year. In particular, the launch of two Grade B projects in Ba Dinh and Dong Da districts after a long wait has provided 136 more apartments. The share of Grade A properties has been stable over the past 5 years at 53%, largely managed by Ascott and the new Oakwood brand.

Total market capacity in Q2 stood at 69%. Particularly, the suburban district of Gia Lam still recorded a significant increase, 32 percentage points quarter-on-quarter, thanks to Vinhomes Ocean Park S2.17's ability to meet the high demand for international students and Korean experts working in the area. neighboring areas. After a record year, Korean tenants surpassed Japan to make up the majority in Hoan Kiem, Cau Giay, and Nam Tu Liem districts. Foreign experts working in industrial zones are the main source of demand in the serviced apartment market. The Covid-19 pandemic that broke out in industrial zones in Bac Giang and Bac Ninh provinces since May 2021 has negatively impacted the demand for serviced apartments.

Ms. Do Thi Thu Hang, Senior Director, Research and Consulting Department, Savills Hanoi, said that the serviced apartment market capacity was recorded stably year over year, partly due to the number of experts. Foreigners permanently stay in Vietnam.

Thanks to a certain number of specialists, the demand for serviced apartments is still recognized. Regarding future supply, the Hanoi market is expected to welcome about 2,400 apartments from 19 projects. Foreign management units will hold 96% of the future units. CapitaLand has announced the acquisition of the Somerset Metropolitan West Hanoi project with a scale of 364 apartments, this deal worth USD 155 million is expected to disappear in the West area after a long time of silence.

The recovery of the serviced apartment market is expected on the vaccine deployment process as well as the shift in foreign investment (FDI) flows. Despite many difficulties, positive macroeconomic results in the first 6 months helped boost the market's outlook. In the first half of 2021, Hanoi ranked sixth in the country in terms of attracting registered FDI with 761 million USD. Five northern provinces are among the top 10 provinces receiving the highest investment, contributing 25% of the total registered FDI, including Hai Phong, Hanoi, Quang Ninh, Bac Giang, and Bac Ninh.

Notably, the industrial development trend is associated with the growth of the serviced apartment market. Matthew Powell, Director of Savills Hanoi, said that the recent increase in industrial development in Bac Giang, Thai Nguyen, and Hai Duong promotes future supply in the Hanoi perimeter area due to favorable access from here to these provinces.

It is forecasted that in the coming time, the demand for foreign workers to return to Vietnam to work will increase, and mainly a group of high-tech workers, experts with management experience and have been licensed or qualified. conditions for licensing. Especially when Vietnam is piloting to reduce the isolation period to 7 days for those who receive the full dose of vaccine from July 2021. As of June 2021, the countries with the highest investment in the North are increasing the rate of second vaccination, including Singapore (36% of the total population), Hong Kong (19%), China Korea (16%), Japan (12%) and Korea (10%).

Sharing the same comment, a representative of Colliers Vietnam also said that, in the short term, the outlook for serviced apartments is not very optimistic, because commercial flights are still limited and the number of foreign experts is decreasing. In the medium and long term, the recovery of the serviced apartment segment depends heavily on vaccination programs in Vietnam and around the world. Many countries are also looking to restore international travel, such as the use of vaccine passports.

The continued inflow of foreign direct investment also brings optimism to this sector, as foreign experts enter Vietnam to work, helping to increase the occupancy rate of serviced apartments. As of June 20, foreign investors poured $15.27 billion into Vietnam, equivalent to 97.4% over the same period last year, according to the Ministry of Planning and Investment (MPI).

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