Solve the floor plan problem.

In 2022, many localities had just emerged from two years of the pandemic, leading to a surge in consumer demand and low rental prices, which encouraged many individuals and businesses to expand their operations. However, in 2023, the global and domestic economies faced difficulties, people tightened their spending, while landlords began raising prices again, causing business activity to become sluggish. The wave of returning leased premises spread from expensive streets in the center of Ho Chi Minh City to many other bustling streets.

Closed down because unable to afford rent.

According to a survey conducted by a reporter from the Nguoi Lao Dong newspaper on November 23rd, retail stores and food stalls on many bustling streets in Ho Chi Minh City were quite deserted. Numerous prime storefronts on Le Lai, Le Loi, Le Thanh Ton (District 1), Cach Mang Thang Tam (District 3)... were closed, their exteriors messy and plastered with "for rent" signs.

A series of vacant rental properties are located on Le Thanh Ton Street, District 1, Ho Chi Minh City. Photo: LE TINH

Ms. Tra My, a saleswoman at a souvenir shop on Le Loi Street (District 1), said that since the beginning of the year, although there have been more foreign tourists visiting Ho Chi Minh City, the percentage of purchases has been very low.

"Tourists are no longer spending lavishly on souvenirs like before. Most only buy items of small value, around 5-10 USD or less. They are less interested in higher-priced products, even with promotions. Shop owners have considered online business, but it hasn't been effective due to the specific nature of the products," said Ms. Tra My.

On Le Thanh Ton Street (District 1), Ms. Xuan Huong, the owner of a noodle shop, complained that she only sells well during the hours from 7:30 AM to 9:00 AM and from 6:00 PM to 7:00 PM, with only a few customers at other times.

Due to slow business, she decided to register to sell online on apps like Grab and Baemin, although the profit margin was small, it helped increase the shop's income. "Many business owners can't afford the rent, so they have to close down after only a few months of opening," Ms. Huong said.

Since the beginning of the year, the number of vacant rental spaces in Ho Chi Minh City's central area has been increasing, proportionally to the fact that many large and small brands in the food and beverage (F&B), fashion , footwear, and beauty sectors are quietly withdrawing from the market.

Coffee shops like Mellower Coffee near Notre Dame Cathedral, Cafe Saigon La Poste next to the City Post Office , and PhinDeli, Saigon Case, and Gió Bắc around the Turtle Lake roundabout have been closed for months. The Chuk Tea & Coffee chain has also closed some unprofitable outlets, focusing on those with good revenue and online sales.

According to a survey of F&B businesses conducted by Vietnam Report in September 2023, from 2022 to 2023, 33.3% of businesses in this sector experienced a decrease in revenue, and 41.7% saw a decrease in profits. Furthermore, according to data from market research firm Nielsen IQ, approximately 84% of fast-moving consumer goods (FMCG) companies increased prices in the first eight months of this year, leading to a continuous decline in revenue.

According to Dzũng Nguyễn, Senior Director of Retail Market Measurement at Nielsen IQ, most product categories experienced a decline in sales volume during the first eight months of this year. Of the 26,214 brands in Vietnam tracked by this market research company, 60% are on a downward trend due to price increases and lost sales volume.

Brand expert Vo Van Quang believes that the sharp decline in purchasing power, the rapid development of e-commerce leading the vast majority of consumers to choose online shopping instead of going to physical stores, and the oversupply crisis in some sectors have rendered many stores ineffective, forcing them to close.

We need to lower the price further.

Ms. Le Thi Ngoc Thuy, Chairwoman of the Board of Directors of Vina International JSC (owner of the Viva Star Coffee and Viva Reserve chains), stated that rental costs account for a large proportion of the total operating costs of F&B businesses. For coffee shop models, rent accounts for approximately 20%-25% of total costs.

Currently, many retail spaces have reduced prices by about 20% - 30% compared to 2022, but the economy remains difficult, and overall market consumption is slow. Therefore, businesses are focusing on cutting costs, ensuring profitability at each sales point, and are very cautious about renting space and expanding operations.

According to analysts, due to the difficult economic situation, store revenue has decreased while businesses have to spend more on promotions, discounts, and other incentives, causing profit margins at stores to fall compared to before.

"Instead of investing in prime locations and spending a large portion of profits on rent, businesses are choosing to withdraw, shift their focus to areas further from the city center, or invest in online sales," said Mr. Tran Le Nguyen, CEO of Kido Group Joint Stock Company.

Dr. Ho Minh Son, Director of the International Media Market Research Institute, pointed out that rental properties in Ho Chi Minh City often change hands multiple times, resulting in very high rental prices for the final tenant. Rental costs account for a large proportion of total business expenses, so lower-priced properties are always preferred. According to this expert, the wave of people withdrawing from the central area will continue to increase in the coming period.

Mr. Nguyen Tat Thinh, founder of Housezy JSC, said that there are still many rental properties in the central districts of Ho Chi Minh City with very high prices because tenants calculate rental prices based on the profit margin on the value of a property or the price in the area.

"They are willing to leave the space vacant rather than lower the price because further reductions would negatively impact the overall market and future rental rates. However, some landlords are willing to reduce prices if the tenant is cooperative and intends to do business long-term," Mr. Thinh said.

According to Mr. Ta Trung Kien, Deputy General Director of Wowhome Investment and Development Joint Stock Company, the most important factor in whether or not a space can be leased is the price. "Simply reducing the rent by 50% for six months from the date of signing the contract, excluding renovation, decoration, and other policies, will reassure the tenant and encourage them to lease immediately," Mr. Kien suggested.

(To be continued)

(*) See the Nguoi Lao Dong newspaper, issue dated November 23.

Mr. Son, who owns several rental properties in Thu Duc City, said that most of the vacant properties in the area are mainly due to tenants negotiating excessively low prices while demanding long-term contracts.

"I also wanted to rent it out, so I reduced the price by 10%-15% compared to the beginning of last year, but the tenant still asked for another 10% reduction. I've partnered with several real estate agents to help with the rental process. As long as there's a serious tenant who understands market prices and intends to do business long-term, I'll accept the price reduction and rent it out immediately," Mr. Son shared.

Source: https://nld.com.vn/kinh-te/keo-suc-mua-dip-cuoi-nam-giai-bai-toan-mat-bang-20231123204436932.htm