Knight Frank Vietnam Managing Director Mr. Alex Crane has gazed into his Crystal Ball at a recent Canadian Chamber of Commerce event, presenting the company’s predictions for Ho Chi Minh City’s commercial property market in the year ahead.

With a tumultuous 2022 in the rear-view mirror, following high profile issues that suspended major projects, and in some cases, led even to prosecutions, all eyes are on the property sector for the forthcoming year. Add the local issues to global economic and investor headwinds, and it’s unsurprising that Crane’s presentation was among the most highly anticipated, and frequently cited by other presenters on the day.

Still, Crane sees opportunity in the developer shake up that has followed the turbulence of 2022, saying: “Last year certainly saw quite a lot of reputational damage incurred to local property developers, but there we are already seeing ‘bubbles of activity’ early this year. At present, if an investor is liquid and able, it is a good time to be making moves in the commercial property industry. Both local and foreign investors are in the market and looking for opportunities right now.”

He remains optimistic about Vietnam’s overall industrial property sector, but did caution that the 30% increase in construction costs we have seen here do see the nation “getting expensive” and pointed out that it is now essentially on par with the Philippines in terms of the cost base for the manufacturing sector when including labour, which is one of the key backbones of Vietnam’s overall economy. He highlighted that the market can expect an increase in supply and will put pressure on land prices and rents in the year ahead.  New supply will arrive from new developments but also with the reopening of ‘gray space’ being those factories that have capacity following either closures or reduction of output/hours through 2022. These will likely be first to come back online in certain industries before new leases are taken in new projects.

Citing Knight Frank’s report from late in 2022, he sees tremendous opportunity for tenants this year. Describing a shift from “owner favourable” to “occupier favourable”, he recommends that enterprises in offices and warehouses speak with brokers about future terms and future rates, with a 23% increase in Grade A and B office inventory set to hit the market in the next 12-24 months – set to bring average Grade A rental rates down by around five percent, and Grade B rates down by around 18%.

“For both industrial and office occupiers, the coming year will be an excellent time to speak to your advisors,” he said. “For manufacturers looking at new facilities are heading into a buyer’s market; and for multinationals and large organisations, the office market here is also beginning swing favourably for them.”

Finally, Knight Frank welcomed further regulatory intervention from the authorities, in areas covering taxation, asset liquidations, lending policies and bond markets to prevent future recurrences of several of the issues that arose in the latter part of last year.

“Much has been discussed of late around the bond market, and there is certainly potential for major legislation around the liquidation of distressed assets that could go some way toward alleviating the pressure on bonds this year. The government could also look to more stringent regulation around borrowing and repayment for developers,” Crane said, before going on to praise the plans for a second property tax, which he described as a “net positive all round” for Vietnam’s property sector.

He concluded by highlighting this year as an opportunity for a broad improvement in across-the-board standards for the commercial property sector, remarking that ‘quality is king’ and talking about ways in which this year will be defined by a higher quality of development, higher standards of governance, and a continued increase in the focus on sustainability and green-accreditation for the new inventory that is coming on line both in the year ahead and into 2024.

The Canadian Chamber of Commerce Annual Crystal Ball – now into its 18th iteration – is one of the flagship events of Saigon’s international business community, this year calling together luminaries across the property, consumer research, tech and entrepreneur, investment markets and legal industries, all making bold predictions for how they see the year shaping up, to a packed ballroom of over 200 local and international industry leaders.