Hung Vuong Plaza Commercial Center in HCM City. Photo: Internet

Unlike offices for lease, retail premises in central HCM City still enjoy whopping rentals, and retail infrastructure still triggers heated debate.

Consumers in major cities lend to visit high-end commercial centers, the domain of global brands. According to Mark Farquhar, business director of Savills Vietnam, this trend is extremely pronounced in countries with a predominantly young population, like Vietnam. In "An overview of Vietnam's real estate market 2008," a special newspaper issue published in the economically tumultuous fourth quarter of 2008, he remarked that Vietnamese consumers are immensely interested in world-class products and yearn for modern shopping centers comparable to those in developed countries.

Take, for instance, the Louis Vuitton shop in the Opera View Building, which saw sales rocketing to US$750,000 on its inauguration day two years ago. Nguyen Xuan Chau, deputy general director of Him Lam Realty Co., which is on the verge of implementing a high-end commercial center project near Kenh Te Bridge in District 7, refers to this phenomenon as "affluent people's exuberant embrace of modern shopping models," while consultants from CB Richard Ellis (CBRE) forecast that the high-end retail market in Vietnam's urban areas will enjoy enormous long-term growth.

The staggering sales of brand name products are also ascribable to exorbitant domestic prices, which far exceed their overseas counterparts. Tran Van Hung, head of Eden Mall's Premises Lease Division, confirms that demand for brand name products springs mostly from locals rather than foreigners. Thanks to their thorough grasp of consumption patterns among the urban rich, international fashion brands are constantly hunting for available premises in modern shopping centers, although the short supply of such premises poses challenges.

At the crossroads

Realty developers hankering after this market segment share Farquhar's view that domestic retail technologies must develop more rapidly to retain domestic consumers, who otherwise may capitalize on cheap overseas tours and drop outrageous sums of money on brand name products in shopping centers in Thailand or Singapore. In reality, grabbing "golden" land plots, suitable for developing new shopping centers, is no mean feat. Although the ability of these projects to stick to their schedule is questionable, recently HCM City has witnessed the rise of Kumho Asiana Plaza, incessant efforts to speed up the development of Vincom's projects, and the official opening of Saigon Paragon Shopping Center in late June.

Based on preliminary statistics, and excluding the adverse impacts of the financial turmoil on developers' budgets, Savills forecasts that in the next four months, HCM City will add another 1.1 million square meters of retail premises, with new standards for Vietnam's commodities and retail industry. Mean while, CBRE estimates that up to 1.35 million square meters of retail premises will come into operation, with over 50% of the projects under construction and the remainder on paper.

Many businesses hope that the increased supply will spark off a ferocious competition and pull down prices, which are soaring in central HCM City. However, those currently or on the verge of renting premises scarcely seem worried about such hefty rentals. Chau says that the ratios of existing retail premises to financially endowed shoppers in Hanoi and HCM City pale in comparison with those in other regional cities. Tran Van Hung even says that "rentals at strategic locations will only jump, instead of falling."

It remains unclear whet tier those with retail premises for lease have drawn any lesson from the lackluster performance of the market for office space, especially regarding locations. However, at present, both domestic and foreign enterprises are vying against each other for opportunities to develop commercial renters. Observers offer three main scenarios for the next few years.

In the first scenario, the market will be fully opened to 100% foreign-owned retailers. In this scenario, domestic retailers will benefit from the rich experience of their foreign counterparts, as regards management, branding and elegant displays Retail consultants from Savills say that such experience will increase the business efficiency of domestic retailers and establish new standards for retail services and products. Farquhar says that a new level of competence and a balance between foreign and domestic retailers will lead to a unique Vietnamese retail market.

In the second scenario, restrictions arc imposed on the extent to which foreign enterprises can set up retail outlets. Instead, these businesses will provide consultancy and management services for Vietnamese developers According to Nguyen Ngoc Minh, managing director of Hung Vuong Co., the owner of Hung Vuong Plaza Commercial Center, this scenario bodes well for domestic traders and project developers. However, not all of them are capable of optimizing the advantages of foreign services.

On the other hand, although project developers are fully aware of the favorable rentals for retail premises, they need a longer time to recoup capital compared with those focusing on apartment construction. Clearly, Vietnamese businesses are less financially capable than their foreign counterparts, especially when interest rates are floated. Minh says that in this case, many enterprises will continue to opt for collaboration in investment and business. However, some contend that only in a fiercely competitive market can retailers and consumers reap the greatest benefits.

In the third scenario, domestic enterprises are ambitious but slow. In other words, they seize strategic locations but steer clear of foreign services due to fears that their foreign counterparts will prevail against them. According to Nguyen Xuan Chau, this scenario is more unlikely because some domestic developers will want to cash in on the considerable experience of foreign retail-center managers to enjoy a competitive edge. However, if most Vietnamese businesses are on the defensive, this scenario, arguably the worst of the three, will occur. After all, the retail market needs to intensify integration efforts by improving sales capabilities.

Finally, the likelihood of each scenario hinges significantly on the Government's market development policy and whether Vietnam wants to progress rapidly or slowly.

Source: Saigon Times