The impact of FDI on the growth of serviced apartments

DNHN - Foreign direct investment (FDI) stimulates the growth of serviced apartments by increasing demand from international experts. FDI drives market expansion, particularly in rapidly developing areas.

The impact of FDI on the serviced apartment segment in Hanoi and Ho Chi Minh City

In Hanoi, the increase in foreign direct investment (FDI) is gradually expanding to neighboring provinces such as Bac Ninh, Hung Yen, and Hai Duong. The boom in FDI and improvements in infrastructure connectivity have led to the rapid development of serviced apartments in these areas. The growing demand for high-quality accommodation for foreign experts is one of the main factors driving this shift.

Meanwhile, in the Ho Chi Minh City market, the diverse demand for serviced apartments has led to strong development in various segments, meeting the needs of different customer groups. The variety of serviced apartment projects reflects changes in market requirements, where investors are seeking flexible and high-quality accommodation solutions for a range of clientele.

The increase in FDI into Vietnam in recent years has created a high demand for quality serviced apartments, especially for international experts. Mr. Troy Griffiths, Deputy Managing Director of Savills Vietnam, said that although there has been a slight slowdown this year, overall FDI into Vietnam remains at a positive level. Over the past 3-4 years, about $2-4 billion of new FDI has been registered annually, mainly focused on sectors such as electricity, liquefied gas, and energy.

According to him, FDI into Vietnam is currently shifting from merely focusing on competitive costs to investing in infrastructure leasing services and optimizing supply chains, particularly in the electronics industry. This shift brings significant benefits to the economy and increases the demand for serviced apartments as more managers and foreign experts come to work in Vietnam.

Growth trend of the serviced apartment market

In Hanoi, the serviced apartment market mainly focuses on the high-end A and B segments. However, demand is increasing in neighboring areas such as Bac Ninh, Hung Yen, and Hai Duong thanks to infrastructure connectivity development from Hanoi. It is expected that about 2,000 new serviced apartments from Sun Group will be launched in Hanoi, accounting for about 30% of the total market supply.

In Ho Chi Minh City, the demand for serviced apartments is very diverse, with the development of many projects in the C segment. Tenant groups in Ho Chi Minh City include experts from various fields, leading to diversity in demand. This creates a clear distinction from the serviced apartment market in Hanoi.

Despite challenges such as the COVID-19 pandemic, the serviced apartment market has remained stable. In Hanoi, prices and performance were not significantly affected. In Ho Chi Minh City, although there was a slight decrease, the market has recovered well. Overall, the serviced apartment segment is still considered an attractive sector with stable performance.

The demand for serviced apartments is primarily driven by FDI, but FDI growth has shown signs of slowing in Ho Chi Minh City. According to data from the Ho Chi Minh City Statistics Office, in the first half of 2024, total FDI reached $1.1 billion, down 19% from the previous year. Newly registered FDI reached $192 million from 597 new projects. Long-term accommodation demand from businesses remains stable, but growth may face challenges due to fierce competition from rental apartments, with over 40,000 units handed over in the past three years.

Ms. Cao Thi Thanh Huong, Senior Manager of the Savills Ho Chi Minh City Research Department, believes that the serviced apartment market is performing well thanks to the return of international experts. Renovation projects will create a competitive advantage over rental apartments. Studio and one-bedroom apartments are always a popular choice due to high demand for affordable pricing. Over the past five years, Savills has recorded 1,849 units from 48 new B & C grade projects, with 85% of the market share belonging to studio and one-bedroom apartments. It is forecasted that by 2025, there will be an additional 500 units from five new projects, with 63% located in District 1 from three B & C grade projects. The current occupancy rate in Ho Chi Minh City is 79%, slightly down from last year, with rental prices reaching VND 513,000/m2/month, up 1% quarter-on-quarter and unchanged year-on-year.

To address current challenges, cooperation between the private and public sectors is necessary. The private sector can provide capital and expertise, while the public sector can facilitate with land access and a transparent business environment for investors.

Nghe Nhan