Savills: Serviced apartments expected to recover

FDI in large projects and infrastructure improvements are expected to have a positive impact on future demand in the serviced apartment segment, according to Savills World Research .

Increasing rental demand for serviced apartments has been seen in both Hanoi and Ho Chi Minh City. Returning foreign experts and FDI growth are factors driving the positive development of serviced apartments in these two markets.

In Ho Chi Minh City, according to Savills, supply increased to 8,200 units as of the end of 2023 thanks to growth in Grade B and C projects. Of these, 27 new projects provided 840 units, with 85 per cent being studios and one-bedroom apartments from Grade C projects.

Rents of all grades increased year-on-year thanks to recovering demand. Specifically, Grade C rental prices saw the highest year-on-year increase, of 8 per cent, followed by Grade B with 5 per cent and Grade A 3 per cent.

Hanoi’s serviced apartment segment remained stable in the fourth quarter of 2023.

In the last quarter of 2023, the market recorded supply of 6,078 units from 63 projects, down 1 per cent quarter-on-quarter because the Dolphin Plaza project (Grade B) stopped deploying serviced apartments. However, year-on-year, supply increased 2 per cent due to the entry of two Grade A projects - Lancaster Luminaire and L7 West Lake - in the second half of the year.

Capacity and rental prices simultaneously recorded good recovery. Savills’ research shows that occupancy of serviced apartments in Hanoi reached 83 per cent in the fourth quarter of 2023, an increase of 2 ppts quarter-on-quarter and year-on-year. The average rental price stood at VND580,000 ($25) per sq m per month, stable quarter-on-quarter and increasing 1 per cent year-on-year.

Regarding prospects, the market is expected to have 3,821 units in the future. In 2024, there are expected to be two projects, including Parkroyal Serviced Suites (Grade B) with 261 units and Fusion Suites (Grade B) with 193 units.

In 2025, 1,905 units of the Tay Ho View Complex will enter the market, increasing Grade A supply by 61 per cent compared to 2023. Tay Ho will account for 63 per cent of future supply with 2,423 units. This will be a popular area with foreigners thanks to its dining, entertainment, international schools, hospitals, and parks.

Mr. Matthew Powell, Director of Savills Hanoi, said demand for renting serviced apartments has returned in 2024 compared to 2023 thanks to an increase of foreign experts coming to Vietnam through FDI projects. “FDI from large projects accompanied by continuously improved infrastructure will have a positive impact on demand,” he added.

The Hanoi General Statistics Office said that registered FDI capital in the capital reached the highest level in the past three years in 2023, with $2.9 billion, an increase of 70 per cent year-on-year.

Hanoi is in the top 5 FDI attraction destinations in the country. Capital contributions and share purchase activities saw the largest increase, with 248 per cent year-on-year, and accounted for the largest proportion, with $2.1 billion, or 75 per cent of total FDI in Hanoi.

Japan accounts for 60 per cent of total registered investment capital in Hanoi’s industrial parks, helping its investors become a group of potential tenants.

Ms. Trinh Huynh Mai, Deputy Director of the Commercial Leasing Department at Savills Hanoi, said foreign experts have high requirements for apartment quality, location, management services, and especially security, safety, and other amenities. Therefore, most serviced apartment management units are reputable brands.

In the Hanoi market, international operators will account for 87 per cent of future supply with 3,309 units from nine projects, while seven domestic operators are expected to provide 521 units from seven projects.

“Tenants in Hanoi tend to choose the central area and move to surrounding industrial areas to work,” Ms. Mai said. “Continued infrastructure development will therefore help serviced apartments benefit.”

In the context of recovering capacity but limited supply, she went on, this segment is expected to continue to  hold investment potential with attractive profit rates. “However, to attract tenants, investors need to ensure location, quality of life, care services, and legal regulations in renting housing to foreigners,” she added.