New Brands Face Challenges In Finding Retail Spaces At Shopping Malls

• Viet Nam's retail sector is experiencing a strong recovery, driving expansion demand from international brands.?
• Despite shopping malls offering large rental spaces, new market entrants still face difficulties securing suitable locations due to rising rental prices and fierce competition.

Viet Nam’s Retail Sector witnessed a robust rebound?

The retail sector, one of the most vibrant industries, has experienced continuous growth for many years and is now making a strong recovery after the pandemic. According to the General Statistics Office, in the first half of 2024, total retail sales of goods and consumer services reached VND 3.098,7 trillion, increasing by 8,6% compared to last year.

Viet Nam is undergoing rapid urbanisation with a large working-age population. In recent years, domestic purchasing power, average income and the upper class have grown. Based on the latest report of New World Wealth, a global wealth and migration research firm from South Africa, and Henley &Partners, a Swiss company specialising in residency and citizenship through investment, the number of millionaires in Viet Nam (those with a net worth from 1 million USD) increased by 98% from 2013 to 2023, which is the fastest growth rate worldwide.

Moreover, Viet Nam's tourism sector has demonstrated strong resilience post-pandemic, contributing to the retail industry's overall growth. The National Tourism Administration reported that the country welcomed over 1.2 million international visitors in June alone. Over the first 6 months, the cumulative total exceeded 8.8 million visitors, marking an almost 60% increase compared to last year.

These factors have accelerated the demand for international brands to enter and expand their footprints in the Vietnamese market, capitalising on the country’s growing consumer base and thriving economic landscape.

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Shopping centres attract tenants???

In response to market demand, the supply of retail spaces has generally continued to grow. By Q2/2024, the supply in Ho Chi Minh City reached nearly 1.5 million m2 of leasable space, marking a 2% quarterly increase. The market will see over 188,000 m2 of new space from 12 projects by 2026. In Ha Noi, while the total supply decreased by 1% QoQ, it still grew by 4% YoY, largely due to the closure of the Robin Department Store. Over the past five years, the average annual growth rate of supply has been 3%.

According to Ms Hoang Nguyet Minh, Senior Director of Commercial Leasing at Savills Ha Noi, demand for leasing in shopping centres remains high. In the last quarter, Ha Noi saw numerous active transactions in shopping centres, particularly in the F&B sector. For example, Pizza 4P’s expanded their area twice at Lotte Center Ha Noi, and Gyu Shige, a Japanese BBQ chain, opened its first location in Ha Noi at Lancaster Luminaire after a successful reception in Ho Chi Minh City. In Ho Chi Minh City, the newly launched Vincom Mega Mall Grand Park has performed exceptionally well, accounting for 65% of the total market absorption.

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New Brands Competing for Retail Space

However, Ms Minh notes that not all shopping centres succeed in attracting and retaining tenants. New brands also face significant challenges in securing retail spaces within these centres.

Savills' Q2 report indicates that in Ha Noi, leasing occupancy has dropped by 3 % points compared to the previous quarter and 2 % points YoY, reaching 84%. Meanwhile, although the retail podium segment has seen a 7% annual increase, shopping centres have experienced a 4%-point decrease in occupancy. Notably, department stores have maintained stable occupancy levels throughout the past year.??

Leasable space has decreased by 49,800 m2, with shopping centres experiencing a substantial reduction of 54,000 m2. Conversely, the retail podium segment has seen the largest increase in leasable space, with an addition of 13,900 m2.

Ms Minh explains:

“Despite high demand, the decrease in shopping centre occupancy is due to ongoing brand changes within these centres. Additionally, many shopping centres are being developed as retail podiums within residential buildings. This segment is less attractive to retailers than larger shopping centres, particularly for fashion, beauty, and dining brands.”??

Retail podiums primarily attract brands such as gyms and cafes. However, these spaces often include many columns or elevator shafts serving residential areas, making them less appealing than larger shopping centres like Lotte Mall, Vincom Retail, and Aeon Mall. These larger centres are carefully designed with tenant distribution and marketing strategies to create engaging shopping and entertainment environments.?

According to Savills' experts, rising rental costs also challenge brands, particularly newcomers. In Ha Noi, ground floor rents have increased by 2% quarterly and 13% annually. Rental rates in central shopping centres have risen from VND 3.1 million per square meter per month to VND 3.4 million, while hypermarket rents are at VND 2 million per square meter per month.

To address the issue of vacant spaces while new brands struggle to find suitable locations, Ms Minh advises:

“Developers need to develop and implement a strategic tenant mix plan, ensuring a balance between consumer shopping, entertainment, and market demands to attract tenants. Additionally, businesses should thoroughly research local demographics to ensure optimal leasing strategies. From another perspective, management entities should focus on service quality, marketing and promotional activities, entertainment options to stimulate demand, and pricing support programs to ensure visitor traffic to shopping centres.”?

For example, Vincom Mega Mall Grand Park is a notable shopping centre with a well-planned tenant strategy, seasonal customer attraction programs, and solid multi-platform marketing. After just one month of operation, the project has welcomed nearly 100 renowned brands across various sectors and attracts tens of thousands of daily visitors.?