Office, retail markets still on downward trend: report

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Both office and retail sectors in Ho Chi Minh are still struggling as rents continued to soften in the third quarter, real estate companies said.

According to a recent report by DTZ Research, office rental rates fell across the board in the last quarter. Average Grade A rents in the central business district fell slightly by around 0.9 percent from the previous quarter to US$33 per square meter per month. Grade B and C offices saw a decline of 2.6 percent and 0.7 percent respectively.

Average occupancy dropped to 79.5 percent from 82.5 percent in the second quarter, DTZ said. The company forecast further softening of rents for all office grades over the rest of 2011 and into 2012, due to the substantial supply potential .

"For the remainder of 2011, we anticipate fierce competition in the HCMC office market across all grades as landlords compete aggressively to fill their buildings in an increasingly tenant-friendly market," said David Brunt, Senior Manager of DTZ Occupier Services.

Property brokerage Knight Frank said in a report that the office market was "relatively stable" with rental rates remaining strong particularly at buildings in the city's downtown area.

The company noted that a new trend of mergers and acquisitions helped drive the market, soaking up some of the demand.

"The fragile nature of some companies in Vietnam coupled with high interest rates opens opportunities for those looking at the potential of the Vietnamese market, this is particularly apparent from Japanese companies," Knight Frank said, adding that finance and telecoms are among the active sectors for this investment trend.

Meanwhile, the retail real estate sector in the city is on a downward trend as trading conditions continue to remain challenging for most retailers.

Knight Frank said rental rates had decreased slightly due to the low purchasing power, mirroring the second quarter.

"There has been a fall of up to 10-30 percent in visitor numbers within some shopping centers. Therefore a number of retailers are re-negotiating their terms and conditions," the company said. "We anticipate the downward trend of the retail market will continue in the next quarter, until the Tet period of next year."

According to DTZ Research, the average retail occupancy rate fell from 93.4 percent to 91.4 percent in the third quarter.

"In this quarter we have seen retail rents fall throughout HCMC as landlords of retail centers feel the pressure of upcoming developments," said KP Singh, General Director of DTZ Vietnam. However, he said, many large retailers are still looking for space, which indicates that there is demand in the market. 

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