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CBRE GROUP

CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2018 revenues of $21.3 billion and more than 90,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #146 in 2019. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

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The Real Estate Investments division is led by
Mike Lafitte, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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ASIA PACIFIC WATCH

Our previous claims that Vietnam’s economy could be among the winners in the ongoing trade war appear to be playing out, with its GDP accelerating by a powerful 7.3% YoY in Q3 2019 (Oxford Economics). Exports of goods and solid foreign direct investment in manufacturing have been key drivers. Even before the trade war rumblings began, Vietnam was benefitting from rising labor and other costs in China prompting manufacturers to set up operations there. Vietnam’s economic fundamentals are thus favorable to support a higher quality and greater quantum of real estate. So too, its demographic drivers are very promising with a national population of over 96 million (making it the 15th most populous country in the world) and with two cities – Hanoi and Ho Chi Minh City (HCMC) – each with resident populations greater than 7 million. Infrastructure projects, such as the mooted North-South Express railway, urban rail line upgrades and the Long Thanh International Airport approved to commence in 2021 and expected to deliver in 2025 – are among the long-term investments in the economy. Might these relatively strong drivers and potentially higher property returns justify the risk? Possibly, but the biggest challenge of all may be currency. The Vietnamese Dong has persistently weakened over the past three decades, and the base case expects that to continue.

GDP GROWTH RATE: A GLOBAL OUTPERFORMER

Vietnam has enjoyed a strong 6.5% average annual real GDP growth rate since 2001 and the Oxford Economics base case scenario expects that pace to moderate to 5.8% p.a. for the coming five years. Still, Oxford recently upgraded its 2019 and 2020 forecasts to 7.0% and 6.6% respectively. This is very healthy growth for a large country on a regional and indeed global basis. Hence Vietnamese interest rates have been at comparatively high levels although the State Bank of Vietnam unexpectedly cut the policy rate by 25 bps to 6% in September 2019. Domestic drivers are also gaining traction with households benefitting from stable inflation and stronger wages allowing real retail sales to rise 9.5% YoY in Q3 2019 for example.

JANUARY 2020

23,656.62

1.6%

Nikkei 225

28,543.52

8.3%

Hang Seng

3,050.12

6.2%

Shanghai Composite

108.67

.077%

Yen/Dollar

Data points through end of December 2019. Change represents month-over-month change.

GDP AND CPI HISTORICAL AND FORECAST TRENDS
PRINCIPAL CONTRIBUTORS:
Shane Taylor
Juliet Cha
BUT HOW LOW CAN THE DONG GO?

In spite of the very strong economic and demographic fundamentals of Vietnam, the persistent weakening of its currency holds back many international institutional investors from allocating there. High currency volatility is often cited as a reason for avoiding certain emerging markets. In the case of the Vietnamese Dong, it is less an issue of volatility but rather the continued weakening of its currency which has precluded foreign institutions from investing there. Vietnam’s competitiveness as a manufacturing location is in part derived from its weakening currency and although Oxford expects it to broadly stabilize for the coming five years at between VND 22,900 to 23,600 per USD, this is still well down from the pre-GFC average exchange rate for 2007 of VND 16,077.

VIETNAMESE DONG PER USD
Note: Transactions include properties and portfolios USD 10 million and greater. Development sites/land sales are included.
Source: Real Capital Analytics as of 10 December 2019
LAND SALES TAKE A PAUSE

After two very strong years of development site sales in 2017 and 2018 (with a combined USD 2.1 Billion of transactions) Vietnam’s land market cooled considerably in 2019 (RCA). Institutional investment-grade property stock is small in Vietnam and thus it makes up a tiny share (less than 1%) of a market-weighted APAC core property allocation. But that stock will increase in coming years if the recent surge of sales in development sites sees new pipelines of prime stock successfully deliver. Given the importance of tourism (as well as business travel) it is unsurprising that hotels have frequently been the most-traded property type in Vietnam. In 2019 (as of mid December) some USD 210 Million of hotels changed hands in Vietnam and thus dominated property investment volumes there.

TRANSACTION VOLUME BY SECTOR
Note: Transactions include properties and portfolios USD 10 million and greater. Development sites/land sales are included.
Source: Real Capital Analytics as of 10 December 2019
OFFICE VACANCY RATES TICK HIGHER

Three new office towers were added to the stock of HCMC in Q3 2019 and the vacancy rate for Grade A moved just above 8% and Grade B approached 6%. Stronger volumes of new supply are expected to deliver in 2020 and likely push vacancy yet higher and limit further upside on rents. The technology sector has been the biggest occupier of new office space in recent quarters. For Hanoi the fundamentals are better with vacancy declining in both Grade A and B segments of the market QoQ (albeit still higher YoY) and annual rent growth higher by 4 to 5%. Flexible workspace expansion has been particularly strong in Hanoi in the past year with 2019 occupancy around double that of 2018 although such expansion may cool going forward.

VIETNAMESE OFFICE VACANCY RATES
AND PRIME RENTS
Note: Grade A offices
Source: CBRE ERIX
SHOPPING CENTRE RENTS BROADLY FLAT

Shopping Center rents have been quite flat for the past three years and in the more expensive HCMC market, prime rent levels have still not recovered to 2010 levels. In Hanoi however there had been rent level uplift post GFC until 2016 when rents flattened. HCMC retail vacancy is quite low in the CBD, at around 2%, however non-CBD vacancy has long been much higher and is currently above 8%. A strong retail supply pipeline of over 550,000 SqM of NLA is expected to deliver in the coming four year period in HCMC. Two new malls opened in Hanoi in Q4 2019 and as with HCMC the CBD vacancy rate (sub 2%) is much lower than non-CBD submarkets at just over 8% (CBRE).

VIETNAMESE SHOPPING CENTRE RENTS
Source: CBRE ERIX
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Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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