On August 1, 2024, the Land, Real Estate Business and Housing Laws officially took effect, which is expected to create strong momentum for the development of the real estate market and socio-economy in Vietnam. We have seen many new projects launched and attracted great interest from investors.
The Net Zero Tracker report shows that more than 1,000 of the world's largest publicly listed companies have committed to setting a net zero emission target. This has led to developments seeking to catch up with demand, such as continuing to apply AI technology, and integrating Environmental, Social & Governance (ESG) policies and automation applications for asset management in commercial real estate business. For the Year of the Dragon 2024, Cushman & Wakefield highlights five trends that are expected to play a key role in the future direction of the commercial real estate market in Vietnam.
1. ESG actions are too important to delay now
More and more companies, especially REITs and property funds, will focus their efforts on completing ESG goals in 2024, in all aspects of their business, including occupying and investing in properties. Businesses aiming to neutralize carbon emissions by 2030 are beginning to realize that only a few years remain until the deadline. Therefore, companies must double or even triple their effort as the target date approaches, putting pressure on many developers and property owners to adopt ESG principles to attract global investment capital. This also means that funds will limit investment into projects that lack commitment and plan for ESG implementation in the long term.
Currently, about 430 green buildings in Vietnam are evaluated, and certified by the system and standard of LOTUS (VGBC), EDGE (IFC-WB), LEED (US Green Building Council), and Green Mark (Singapore) with a total construction floor area of about 10 million square meters. However, the number of green buildings is still modest compared to the total amount of buildings in the country. To date, Vietnam has no building designed, constructed, or managed to meet the net-zero emission standard.
2. The premium office market continues to be in tenants’ favor
The results of Cushman & Wakefield’s July 2024 survey on office demand in Vietnam highlighted the long-term importance of the office compared to remote working. The workplace will be a space that offers greater flexibility, more opportunities for employees to interact with colleagues and social activities, and offers diferent types of workspace depending on the needs of each job.
By the end of Q2 2024, Grade A office occupancy rates in Ho Chi Minh City and Hanoi reached 81% and 74%, respectively. Some projects have adjusted their rents more favorably and are more willing to negotiate with tenants, this has serve as encouragement for businesses to take advantage of the opportunity to negotiate and upgrade their offices to better and newer buildings. We also note that manufacturing, finance, banking, real estate, technology, pharmaceuticals and healthcare are the sectors driving office demand, with a greater focus on building specifications and sustainable practices.
With that, multinationals and Fortune 500 companies will continue to turn to ESG compliance as part of their global headquarters mandate, giving them an incentive to seek out green and healthy certified buildings such as LEED, WELL, Green Mark. As of Q2 2024, there are more than 20 green certified commercial buildings operating in Vietnam.
3. Automation and Smart Warehouse
In the industrial sector, robots are increasingly used in modern warehouses to improve operational efficiency. As the retail market continue to grow, E-commerce companies will eventually need more storage space, and we predict that the demand for warehousing will increase three times faster than the growth of e-commerce. We will continue to see logistics companies increasingly using robots and automation in their daily operations. Furthermore, robots and automation have the potential to help solve labor shortage issues by operating 24/7, ensuring greater efficiency, speed and accuracy.
However, robotic technology often requires significant investment costs, along with higher construction specifications such as larger floor slabs, floor heights, and floor load capacities. Therefore, robotic applications are likely to be deployed first in larger-scale warehouses. The Cainiao smart logistics warehouse developed by Alibaba in Vietnam is likely to be the benchmark for many large-scale warehouse development projects in the future.
4. Surge in health-focus lifestyle creates new demand for fitness centers
We have observed the growing popularity of health and fitness, especially in retail properties. About 10 years ago, the market was quite weak and fragmented. However, since 2007, with the emergence of major brands such as California Fitness & Yoga, the market has grown strongly and clearly divided into high-end and low-end segments. Currently, there are many different brands such as Elite Fitness, CitiGym, Unifit, Body Fit, F45,... meeting the diverse needs of fitness consumers.
As the fitness trend evolves, more small and medium-sized operators are entering the market, looking for spaces ranging from 200 to 800 square meters and some operate with a 24/7 service model. Other alternative fitness operators, such as indoor climbing gyms and private sports training facilities, are also on the rise. In 2024, we expect this trend to continue to drive greater demand in the health and fitness industry, including franchised or individually owned gyms, yoga studios, and sporting goods retailers. This trend will help increase occupancy rates in the retail sector as well.
5. Increased demand for online meeting equipment and flexible space
Businesses will likely need to expand capital to upgrade equipment in their future office, such as spending more on video conferencing equipment, supporting software applications, and other meeting-related tools to help facilitate high-quality virtual interactions. Especially for newer generations of the workforce like GeN Z, the office will need to be more multifunctional. Tech companies and startups, for example, are spending more on collaborative spaces, such as revamping cafeterias with bartenders or designing large common areas that have work nooks and creative spaces but can also host events as needed.
Conclusion
Overall, the Year of the Dragon has brought about a significant shift in Vietnam’s commercial real estate market. Most notably, we expect ESG targets and greener real estate practices to be more influential than ever. ESG is not just a trend but also a direction for sustainable development in Vietnam. The country has also set a target of achieving net zero emissions by 2050. This shows that the Government and businesses are making efforts to change the urban landscape by combining technology and human resource training to improve the living environment.
While macroeconomic uncertainties will certainly create new challenges and opportunities, we expect that the trends we have highlighted here will lead real estate stakeholders to continue to rapidly review their strategies in 2024-2025.
