Drop because they don't shop

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High rents, oversupply and low purchasing power could deal killer blows to many shopping malls in Hanoi.

 
Customers look at flat screen TV's at a mall in Hanoi

Many shopping malls in Hanoi are facing the risk of being shut down, failing to attract customers amidst a prolonged economic downturn.

At the Mipec Tower, a complex of offices, apartments and shopping mall that opened in 2011, a few shops are scattered on the first and second floors. The upper floor is largely vacant.

The manager of a fashion shop said he is seeking other businesses to sublease the space. "We receive very few customers. We are not earning enough to pay the shop's rent.

"Many other shops are also in the same situation. Some have been unable to pay their shop rents and have downed their shutters," he said.

The average occupancy rate in Hanoi's retail spaces was approximately 87 percent, down by 2 percentage points quarter-on-quarter, and 10 percentage points year-on-year. Occupancy has been sliding downwards since the second quarter of last year, according to property services provider Savills Vietnam.

Vietnam's retail sales for the first half of the year grew at the slowest pace since 2004, according to the General Statistics Office. It said purchases rose by 12 percent to VND1,141.4 trillion (US$54 billion) compared to 17-30 percent increases in the last nine years.

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Finding it hard to find tenants, the Grand Plaza in Hanoi's Tran Duy Hung Street, where Italian shoes and French perfumes are sold to the urban middle and upper classes, closed late last year. A representative of the mall's operator International Financial Investment And Enterprise Development Joint Stock Company said the mall was closing for "business strategy adjustments." However, he did not say when it would reopen.

The Hang Da shopping mall, after more than two years of operation, closed recently to upgrade its upper floors. It plans to re-open in October, but no customers have registered to rent shops so far, said Vu Danh Hoa, director of the Hang Da Trade Company, the mall's operator.

Businesspeople say high rents and low consumption are the main reasons for the high vacancy rates in the capital city's shopping malls.

The owner of a shoe shop in Hang Da said she had to pay some $50 per square meter per month as rent as also some additional fees. The high rent has forced her to close the shop and seek space elsewhere with lower rents, she said.

Oversupply of mall space has also contributed to the high vacancy rate, experts say.

In the second half of this year, 17 projects are expected to come online, providing approximately 480,000 square meters, which is equivalent to 63 percent of the current total, says Savills Vietnam.

"This will greatly increase the pressure on the retail market," the company said.

Savills Vietnam also said in a report this week that despite the tough situation, the market has great potential for development.

"Hanoi has great potential for growth in modern trade stores as the density of this format in Vietnam remains low compared with other cities in the region: 9 stores per 1 million people compared with the Philippines (38), Indonesia (65), and Thailand (136)."

Meanwhile, property firm CBRE has said it has seen some good signs for Vietnam's retail market in the second quarter.

Warburg Pincus, a leading global private equity firm, is investing $200 million to acquire approximately 20 percent equity interest in Vincom Retail. Warburg's partnership with the Vingroup Joint Stock Company demonstrates foreign investors' interest in Vietnam's retail sector, said CBRE's first half review, which was released this week.

In addition, an amendment to the economic needs test (ENT) that foreign retailers have to face while opening additional branches in Vietnam could boost their confidence in the domestic retail market. The amendment, which has come into force recently, exempts foreign invested enterprises (FIEs) from the ENT if the additional outlets have an area of less than 500 square meters each and are located in areas designated for trading activities.

Under a master plan drafted by the Ministry of Industry and Trade, Vietnam will have 1,2001,300 supermarkets, 180 trade centers and 157 shopping centers by 2020.

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