Supply to grow by 21% in 2019, mostly to the West
In 2018, 72,500 sq.m NLA from four projects were added to Hanoi retail market, driving up total retail supply to nearly 865,000 sq.m. Retail space in CBD accounts for only 6.3% of total space in Hanoi and will reduce to 4.8% by 2021 with no future supply in the CBD in pipeline. CBD will continue to post positive rental growth and low vacancy rates of below 5% in the coming year. Nevertheless, non-CBD shopping malls will face strong pressure from rising competition. Two of four malls opened in 2018 include Discovery Complex and Machinco in the largest retail supply cluster – the West where nearly half of total retail space is located. Looking towards 2019, retail supply will grow by 21% per annum, bringing total space to surpass one million sq.m. The West will continue to dominate market supply as four out of six projects (126,700 sq.m) will be opened in 2019 in this area. On the other hand, residential developments and infrastructure improvements will lead to more retail supply in the South with two openings in 2019 - Hinode City and Sun Plaza Ancora. New properties in strategic locations with reputable developers are forecasted to charge premium rents while existing ones would face pressure on performance, especially weakperforming malls. As a result, ground floor rents are expected to remain stable or to adjust slightly.
In terms of format, malls as a part of residential complexes will continue to thrive. Five out of six future projects in 2019 are located in podiums, utilizing immediate demand from residential or commercial towers above. Luxury international retailers keen on expanding to local market have searched for shops and podiums along major high streets in CBD as alternative to high-quality retail space, which is of shortage in Hanoi. High street shops, however, pose more challenges than usually unsuitable designs and limited scale. Notwithstanding high rent for prime location, street shops have limitations in terms of façade and technical requirements. International fast fashion tenants require sizeable scales and prefer shared-revenue scheme which is not common for typical shophouse owners. The challenges will remain as landlords and tenants gradually morphed into an agreement.
Evolution of retail locations
At present, there is no established shopping district in Hanoi’s CBD due to a lack of stock. The past few years have seen a shift of shopping areas beyond CBD, gradually forming new bustling retail destinations in local market. The areas within 3-5 km from CBD have seen rapid infrastructure improvements and developments of new shopping malls. Area along Chua Boc, Ton Duc Thang, and Kim Ma streets in Midtown has gained it status as busy shopping areas for street shops and shopping centers, attracting more international brands. On the other hand, the intersection of Pham Hung and Tran Duy Hung streets started seeing more scaled shopping malls with the development of office and residential buildings. Vincom Center Tran Duy Hung is set to open in 2019, luring midend to high-end brands into this area.
International retail developers to be more active
By end of 2018, only four shopping malls in Hanoi are developed and managed by foreign retailers, including Central Group, Lotte Group and Aeon. Looking forward, with the expansion plan of big international players such as Lotte, Aeon, and Big C, the market is expected to see upgrading mall designs with regional scales and comprehensive merchandising mix. Such regional malls tend to locate in non-CBD area with large-scale residential developments, providing add-on services and amenities to residents in the immediate catchment. Looking forwards, the fact that Aeon Mall Ha Dong of regional scale (more than 60,000 sq.m NLA) is expected to come online with its usual Japanese concept, will set new standards and bring more exciting brands to the immediate catchment of Ha Dong district.
Landlords going creative and flexible
2018 saw several cases of flexible offices (co-working) moving into retail spaces on the back of limited quality supply in well-located office buildings. This type of tenants with a typical size of 2,000 sq.m tend to locate from 2nd floor and above, helping to alleviate vacancy pressure for landlords quickly. Besides, some sizeable non-traditional retail tenants such as financial services and health & supplement offices have started moving into shopping malls. This trend is expected to continue in the coming years, especially in malls seeing high vacancy on upper floors. In addition, F&B category will continue to get a bigger bite at most shopping malls, adding experiences to keep mall visitors to stay longer. It is observed that certain new shopping malls have seen share of F&B reach up to 20% while this category typically accounts for only 9 –15% of retail space. Red Sun and Golden Gate are two most active restaurant chains in shopping malls, focusing on those with diversified merchandising mix in populated areas.
AEON set to build a third shopping mall worth US$280 million in Hanoi.
Advanced technology boost brick-and-mortar sales
During 2018, retailers and landlords have invested in logistics platforms and new store concept to drive customers in and attract millennials who are technology-savvy. Lotte Department Store in Hanoi has upgraded instore experience and technology by changing shopping environment to “village concept” and “smart experience”, including new Phuong Nam Bookstore with more lifestyle concept and reading area. New feature “Smart Pick-up” leverages store as pick-up for online orders on Lotte.vn, targeting young customers.
In 2019, investments by supermarket chains in technology are expected to reshape the grocery industry. Vinmart recently launched Scan & Go feature on mobile app for customers to shop. From scanning the products’ specifications to paying at express lines using QR code, app users can shop for products at Vinmarts quickly or have it delivered within two hours.
Outlook
Advanced technology will boost bricks-and-mortar sales. Retail market is expected to see more technology advancement in physical stores amid the disruption of e-commerce.
High quality future supply is expected. The market is awaiting high-quality supply with the increasingly high demand from international retailers and changing young generation’s shopping habits. Besides, the expansion of international mall developers will lead to the transformation of shopping mall designs, putting the pressure of remerchandising and space renovations on many of the existing shopping malls.
