Vietnam commercial real estate report focus on Ho Chi Min City

The GDP of Vietnam in the first six months of 2011 has decreased to 5.6%, a decrease of 0.6% in comparison with the same period of 2010. According to the Ministry of Planning and Investment, this result is very positive despite the economic difficulties faced by the domestic and international communities and the impact of monetary tightening measures applied by the government to curb inflation.

CPI in the first six months of 2011 increased by 16.0% over the same period last year, and 13.3% compared to December 2010. Recently, the government adjusted the inflation target in 2011 from 7% to 15%.

According to GSO, in the first six months of 2011, FDI registered capital reached approximately US$5.66 billion which equates to 56.7% in comparison to the same period of 2010. HCM City is the most attractive location for foreign investors with about US$1.6 billion, followed by Ba Ria – Vung Tau, Binh Duong, Dong Nai and Hanoi.

Singapore is still the biggest partner of Vietnam with total registered FDI capital reaching US$1.3 billion in the first six months of this year.

Leasing activity improved significantly in the second quarter as compared to the first quarter of 2011 which suffered from the disruption of the Tet holiday celebrations.

Vacancy rates in Grade A space in the second quarter was circa 20%, Grade B approximately 18% and Grade C office was circa 15%. The total market size in HCMC is approximately 1,126,000 sq.m.; Grade A accounts for circa 140,000 sq.m., Grade B circa 520,00 sq.m. and Grade C circa 466,000 sq.m.

Average Grade A and B office rentals continued to soften for the tenth successive quarter since the peak of the market in the fourth quarter of 2008. On average, rentals of Grade A office space are in the region of US$33++ to US$40++ per square meter per month (/sq.m./mo) and Grade B office rents are in the region of US$20++ to US$25++ /sq.m./mo (based on Net area). It is anticipated that rents will continue to soften in the third and
fourth quarter of 2011.

A number of significant new lease transactions were completed in the second quarter including Vina Game (7,500 sq.m.) in The Flemington, Hanjin Shipping (945 sq.m.) and Beton 6 (945 sq.m.) in Green Power Building, Chinatrust Bank (1,200 sq.m.) and Premier Oil (1,600 sq.m.) in Kumho Asiana Plaza, Eximbank (3,500 sq.m.) and the Australian
Consulate (4,000 sq.m.) in the Vincom Center.

Absorption of Grade A office space in the second quarter of 2011 was approximately 12,000 sq.m. compared to 8,000 sq.m. in the first quarter of 2011. Absorption of Grade B office space in the second quarter of 2011 was approximately 20,000 sq.m., as compared to 16,000 sq.m. in the second quarter of 2011. In 2011, one Grade A office building is expected to be completed in the third quarter, and that is, the Vista (5,000 sq.m.), located
in District 2.

The supply of Grade A and B office space will increase substantially in the short to medium term. Significant projects which are due for completion in 2012/13 include President Palace, (9,300 sq.m.), Le Meridien, (9,000 sq.m.), BIDV Tower, (30,000 sq.m.), Saigon M&C, (49,000 sq.m.), HMTC Building, (26,000 sq.m.) and Richland Hill, in District 9, (22,500 sq.m.). However, we anticipate significant delays in the office development pipeline due to current economic uncertainty and the large number of key projects currently under construction.

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