Property Market Slowdown to Trigger Greener Thinking in Vietnam

, Ho Chi Minh City, Vietnam

A property market slowdown should result in a more streamlined, efficient and forward thinking market than at any other time. There should be no complacency as neither sellers nor buyers can afford to make ill informed decisions that can affect their long term security. With this in mind, the current challenges faced in the market could just be the biggest spark that the green building industry receives on a private level (public infrastructure projects will have different drivers). In difficult market conditions, buyers and tenants are cautious and will carry out greater due diligence and have time to review the positives and negatives of the many opportunities presented. Equally, developers and landlords have to ensure they are offering the best possible packages to attract their end user, and this is probably the greatest opportunity to embrace a shift in approach to environmentally considerate design and construction.

President Place: a LEED Gold-certified success

An excellent example of successful green design and construction in Vietnam is President Place in Ho Chi Minh City, the first office building to achieve a LEED Gold accreditation. President Place is a project developed by a Vietnamese/Australian backed development company, Sapphire. In this difficult office leasing environment, they have achieved what many thought impossible; pre-leasing. Not only that, a pre-leasing rate of 40% was achieved and to an enviable tenant list including Diageo, Schindler (who installed their latest lift technology with regenerative electrical motors) and Microsoft which also pursued an LEED accredited fit out. The LEED accreditation has been a major unique selling point for the President Place – not only as another mark of quality in construction, the accreditation also validates occupational efficiencies associated with environmental benefits.

Data that supports increased worker productivity, staff recruitment and retention and lower occupational costs was definitely a relevant consideration to the first occupiers as they were familiar with these benefits from their global portfolio. Now there is a valid option, it is likely these MNC’s would have given a greater ‘weighting’ to the score of environmental impact within their appraisal process giving President Place a competitive edge in the evaluation of short listed buildings.

It is also worth noting that as an asset, President Place will stand apart from comparable buildings.  The environmental accreditation will have a bearing on any future valuation appraisal as the certificate offers another mark of construction quality ensuring operational efficiencies are maximised.  Coupled with data supporting better tenant retention rates, the asset life will become longer with a lower rate of degradation.

Foreign players more keen in going green

Interestingly, President Place’s committed tenants so far – which also now include Canon and some smaller occupiers equating to approximately 60% occupancy since building opening in April – are all foreign invested. On a multinational level this may be related to their CSR guidelines. It is worth considering that in the future it could possibly become an absolute requirement for these companies to relocate to a sustainable building as more choice is offered and the opportunity becomes viable.

More key projects are ongoing with the likes of Keppel Land constructing their second phase of Saigon Centre in downtown Ho Chi Minh City, a significant mixed-use development embracing the Singaporean BCA Green Mark accreditation. Keppel have also become the first Landlord to achieve a Green Mark Gold certificate on a residential project, The Estella. Intel have achieved a retrospective LEED Gold certificate on their office and factory campus, and Big C are understood to be pursuing Lotus (the Vietnamese Green Building Council award) certificates on their next stores. These will all add momentum to green accreditation, but again they are all international companies leading the projects.

Green buildings at a local level

This level of activity from foreign parties is perhaps also a real indication that Vietnam needs to improve its green building awareness at a local level. This is also a reflection of both sides of the local market; whilst occupiers do not seem to give environmental efficiency as much consideration, equally there are few green developments being constructed by Vietnamese developers. While the latter point may be due to a lack of drive from local developers (if they really understand that local buyers aren’t interested in environmental standards), it is more likely that it is due to a lack of clear data and experience from investors, contractors and consultants – particularly with regard to an appraisal of upfront cost vs. long term value add.

Data is limited on the true cost implications of green development in Vietnam, but as more buildings come online the situation is changing. Fortunately, there are now more consultants and contractors with direct involvement and live data, and obviously performing assets and developments that are offering more insight into quality and sale/take-up rates.

Envisioning the future of the local market

Localised market sentiment from the buyer/tenant may already be changing as we are seeing a direct shift on some marketing material to include more green overtures, regardless of whether a product is truly environmentally considerate or not. The market will react further as we have seen the first major successes in which developers in this sector will now have to compete for comparable grade projects if they are to attract their target market. We are already seeing a ‘flight to quality’ with new, high standard developments coming online with the addition of an environmental accreditation supporting the construction superiority. It will therefore be imperative for new projects to challenge this, whether they are locally or internationally backed.

Ultimately, it will be the local customers and developers that really make a mass market impact on green building, but inevitably new projects will need to keep up with a jump in standard started by the foreign companies. Hopefully now, armed with correct appraisal abilities and more customer demand or awareness, the key drivers are there for Vietnam to make real strides in sustainable development.

 

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This post is an exclusive contribution by the author, Alex Crane.

Alex Crane is a Senior Manager within the Ho Chi Minh City Commercial Leasing Department of Savills Vietnam, the country’s largest service provider. Alex has 10 years experience in commercial real estate, with experience across all transactional sectors of the industry.

www.savills.com.vn

 

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