What can the retail market expect in 2019?

1. Huge potential

Vietnam’s retail market has enjoyed robust growth over the last few years; this upward momentum is only expected to continue, given the country’s stable economic growth, rapid urbanisation, young population, and burgeoning middle class. According to General Statistics Office (GSO) statistics, income per capital rose by 17% in 2016, whilst purchasing power increased by 14% from 2014.

One point to note is that in comparison with other regional countries, the amount of available retail area is quite low. For example - retail occupancy in Vietnam’s two biggest cities, Hanoi and Ho Chi Minh City, is 0.17 sqm and 0.13 sqm, respectively. However, in Jakarta, Singapore and Bangkok it was 0.44 and 0.75, and 0.89sqm, respectively.

In the third quarter of 2018, modern retail space in Hanoi and HCMC performed well, with occupancy at 97% in Hanoi and 93% in HCMC.

In the last five years, the supply of both major cities has risen 11% annually.

2. The rise of outlying areas

The supply of retail spaces in outlying areas has increased in both Hanoi and HCMC. Experts have attributed the trend to the scarcity of land funds in central areas.

Outlying areas have been gaining additional attention from developers due to the dense population, affordable land prices, improved infrastructure and high quality residential projects.

In recent years, retail space in these areas have generally been a component of a mixed-use development in order to maximise the usage of available land in more central areas. In Q3/2018, retail space in Hanoi and HCMC respectively accounted for 2% and 12% of total space. Supply in HCMC has continuously decreased from 21% in 2013 to 12% in Q3/2018.

Read more: Vietnam Quarterly Market Brief Q4/2018

3. Rise of retail podiums

The amount of area allocated for retail in mixed-use complexes will continue to surge in 2019. This trend sees developments utilise retail as a component to attract residential tenants as well as an amenity for surrounding areas. Until 2020, Hanoi will have 435,000m2 from 19 projects enter; whilst in HCMC, 512,000 m2 from 30 projects will come online.

4. North-South divide

In HCMC, prices in the CBD have increased, yet have declined in outlying areas; thus enlarging the price gap. The decrease has been attributed to the upsurge of supply in outlying areas, where the majority of projects are cheaper.

In Hanoi, the situation is opposite as rent in the city centre fell, whilst improved in the outskirts. Areas outside the city centre accounted for 98% of supply, hence the entire market increased accordingly.

5. Challenges

The key factor to the sustainable development of the local retail market is customers and ability to change their purchasing behaviour. The consumers of the future are assumed to be digital natives who use smartphones, social media and rely on technology for daily tasks. As such, these consumers will have vastly different shopping and purchasing habits, therefore it is essential retailers and the property industry keep up. This new type of consumers will require developers to acquire a thorough understanding of trends to ensure that the fitting-out of retail spaces meet consumer needs and create the ideal customer mix. Upcoming trends that developers and proprietors need to be aware of include incorporating entertainment attractions, athleisure, online to offline stores, and co-working spaces.

Read more: Customer engagement is moving beyond stores

Numerous projects have either had to reduce their retail space and in some instances eventually close; this trend has been particularly prevalent in the department store segment due to the lack of diversity in the tenant structure. Developments were forced to change their architecture and tenant structure as well as renew and introduce new promotional programmes to attract consumers in an effort to improve.

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