Viet Nam’s Prime Retail Sector: Key Trends and Insights in H1/2024

• Viet Nam’s prime retail sector is thriving, driven by a growing middle class.?

• However, limited supply and rising rentals remain challenges for retailers.?

• Businesses should focus on decentralised areas with emerging retail hubs, where new growth opportunities are developing. ?

Viet Nam's prime retail sector experienced rising demand in the first half of 2024, supported by the expanding middle class, rapid urbanisation, and a strong recovery in tourism. Both Ha Noi and Ho Chi Minh City (HCMC) are emerging as competitive markets in Southeast Asia, with increasing demand for prime retail spaces. According to the latest Savills Prime Benchmark data, rental rates in these cities remain robust amid limited supply and high occupancy rates.?

Market Overview: Strong Performance Despite Limited Supply?

The retail sector across major Asia-Pacific cities recovered in early 2023, paving the way for increased rental rates in the latter half of the year. HCMC and Ha Noi saw prime retail rentals rise by 4.7% and 4.6%, respectively, in local currency terms. This recovery highlights the strong demand in these key cities.?

Currently, HCMC offers around 1.49 million sqm of retail space for lease, with occupancy of 92%. A shortage of premium retail space, especially in prime locations such as District 1, has led to intense competition among retailers. Phuong Quyen (Julie) Tran , Senior Manager of Retail Leasing at Savills, comments:

“Limited supply has led to fierce competition for prime retail space, particularly in central districts. The market is expected to expand into surrounding areas as demand grows, supported by a rising middle class and increased tourism.”?

Tourism continues to play a pivotal role in driving retail demand. In 2024, international arrivals to Viet Nam surged to over 11.4 million in the first eight months, a 45.8% increase compared to 2023. This resurgence has boosted retail activity, especially in luxury malls and shopping centres.?

Additionally, a KPMG Viet Nam study projects that between 2020 and 2030, the country’s middle class will grow by 23.2 million people, making Viet Nam one of the fastest-growing consumer markets in Southeast Asia. This expanding consumer base is increasing the demand for retail spaces, particularly as modern shopping malls in HCMC and Ha Noi shift towards offering more lifestyle-driven experiences.?

Do Thu Hang - MRICS , Senior Director at Savills Ha Noi Advisory and Research Department, notes that Ha Noi's limited supply supports high occupancy rates in existing prime properties, keeping the retail sector competitive. Unlike other regional cities where future commercial developments drive rental rates down, Ha Noi continues to experience steady rental growth due to its supply constraints. This trend is expected to persist, particularly in prime and near-prime locations where demand exceeds supply.?

Retail Occupancy and Stability?

HCMC's retail market remains stable despite limited availability. Low competition has kept occupancy rates high. According to Savills, modern retail spaces in the city are primarily concentrated in the CBD (48.6%), though decentralisation is ongoing. New retail developments in Districts 2, 7, and Go Vap will soon provide more options.?

In Ha Noi, the average ground-floor rental rate for prime retail locations is currently US$96.4, including VAT and service charges. This is relatively low compared to regional cities, making prime retail space more accessible to retailers.?

HCMC's retail sector is expected to maintain solid occupancy, with prime shopping centres reporting occupancy of 94%. This market stability and strong demand positions Viet Nam’s retail sector for continued growth into 2024 and beyond.?

Looking Forward: Challenges and Opportunities?

While the outlook for Viet Nam’s retail sector is positive, several challenges remain. Limited supply is a persistent issue, as expansion into secondary districts has been slow, and infrastructure development is lagging. The rising USD exchange rate has also contributed to higher local rental costs, adding pressure on retailers.?

Giang Huynh , Director of Research and S22M at Savills, notes:

“Modern retail in HCMC is still small compared to regional peers and has potential for future growth. Limited prime retail supply and strong demand have led to high performance in this sector. The key challenge for retailers moving forward will be balancing the high rental costs in central business districts with limited options. As decentralisation continues, areas beyond the CBDs will offer more affordable and accessible options for retailers seeking expansion.”?

Viet Nam's prime retail sector, especially in HCMC and Ha Noi, presents significant opportunities for investors and businesses. With an expanding middle class, growing tourism, and sustained demand for prime retail spaces, the country stands out as a key player in Southeast Asia. However, limited supply and rising rental costs pose ongoing challenges. To succeed, investors and retailers should explore decentralised areas and emerging retail hubs to tap into Viet Nam’s continuous growth.?

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