Door unlocks demand


Demand for serviced apartments in Hanoi and Ho Chi Minh City will likely increase despite a growing financial crisis.

In Hanoi, no large projects of over 50 units are expected to go online during 2009, and from 2010, much of the new stock will be in secondary or suburban locations, a Savills Vietnam report said. The Central Business District (CBD) would be static in terms of supply, leading to expectations that projects in central Hanoi would continue to attract premium rents, it said.

The Hanoi market is expected to welcome about 100 new high-end serviced units by end-2008. Yet it is doubtful that rent applied for Grade A units will fall below $62 per square metre in the short-term. Demand remained stable for existing Grade A serviced apartments for lease, especially in Hanoi’s CBD and the West Lake area. High foreign direct investment and overseas development assistance levels in 2008 are encouraging indicators of continued multinational commercial and economic interest in Vietnam, enhancing demand for serviced apartments.

Hanoi has about 40 serviced apartment buildings, providing 2,085 international and local serviced apartment units with nearly half of them being two-bedroom units. Top Grade A rents in the third quarter of 2008 touched $58 per square metre per month, excluding VAT.

The addition of Swan Lake, Lakefront Residence, and Elegant 5, an existing apartment building with newly upgraded services together bring 29 more units into the supply pool. This quantity was probably not significant enough to impact average rents in Hanoi, which stayed at $28 per sqm per month excluding VAT.

The overall average occupancy rate in the third quarter increased by 2 per cent against the second quarter of 2008 to a total of 88 per cent since second quarter 2008. Newcomers Somerset Hoa Binh, Skyline Tower and a new building of CoCo Village gradually achieved a higher take-up rate in this quarter.

In Ho Chi Minh City, Savills predicts that serviced apartment rents will remain steady in the last quarter of 2008 and throughout 2009. “Thereafter, rents may decline slightly as more developments are completed. Overall occupancy levels are expected to remain high,” the report said.

In 2008, 228 units were released to the second city’s market yet demand is still high. Grade A apartments will likely maintain their strong foothold in the market. Over the next three years, however, Savills said there will be a greater supply of Grade B serviced apartments, and this will apply some downward pressure on rental rates.

“Only a limited number of new international standard serviced apartment projects are being developed for lease to expatriates at this time,” it said. However, more Vietnamese are investing in buy-to-let apartment projects which will target expatriates as tenants, creating some competition for lower quality serviced apartment buildings.

There are now 48 buildings of all grades from A to C, including 2,411 serviced apartments available for lease in Ho Chi Minh City. The highest monthly rents achievable, for smaller Grade A apartments, are currently in the order of $35 to $65 per sqm per month.


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