Just over a year after opening a 100,000 square metre office project in western Hanoi, a fund managed by Capitaland Investment Ltd has sold the partially filled asset for S$751 million ($558 million), leaving it with just one partially developed office property in Vietnam’s capital.
CapitaLand Vietnam Commercial Value-Added Fund (CVCVF), a 50-50 joint venture between CapitaLand Development and a unit of Mitsubishi Estate Asia, sold Capital Place, a twin tower office property at 29 Lieu Giai street near Hanoi’s West Lake, to Viva Land, a Singaporean investment company started in 2020 by former CapitaLand executives, including Chen Lian Pang, who headed CapitaLand’s Vietnam business when the company took on the office project in Vietnam’s capital.
“We have successfully created value for our capital partner through our real estate development and asset management capabilities, divesting the prime asset at a premium to book value,” said Ronald Tay, chief executive of CapitaLand Development Vietnam in a statement on Thursday. At the stated price, CapitaLand is selling the project for the equivalent of $5,500 per square metre.
While CapitaLand had managed to attract name brand tenants such as Porsche, Shopee and Standard Chartered Bank to the 37-storey-tall project in Ba Dinh district since commencing leasing in the third quarter of 2020, the twin towers are currently around 30 percent occupied, according to brokers active in the Hanoi market. Tay indicated that CapitaLand will reinvest its share of the proceeds into higher yielding assets, at a time when Hanoi office leasing continues to struggle.
Selling Before the Flood
CapitaLand Development had acquired what is now Capital Place on behalf of the value-add fund in 2018, with local news site Vietnam Finance indicating that the project was previously owned by Vietnamese conglomerate Vingroup as a commercial element of its Vinhomes Metropolis mixed-use project.
While CapitaLand Development declined to disclose its initial investment in purchasing the project, before the sale Vingroup had invested over VND 1.2 billion (then $53 million) in the office development, with the new owners subsequently investing another $246 million to enhance the property, including bringing it up to LEED Gold standards, according to the Vietnam Finance report.
Troy Griffiths, deputy managing director for Savills in Vietnam said that monthly gross rents in Capital Place average $40 per square metre per month, which is slightly higher than the $38 per square metre average rents across all grades in the city.
Griffiths noted that Hanoi’s office market currently averages 85 percent occupancy with another 480,000 square metres expected to enter the market via 20 new projects due to launch by 2023. That flood of fresh supply would increase the size of the city’s 2.1 million square metre office market by nearly a quarter.
Sought for comment, Viva Land, which has $5 billion in total assets and equity according to its website, was not able to provide a response by the site’s deadline.
Sources familiar with the transaction indicated that the company, which according to its website, has developed and managed five projects in Vietnam and Singapore, intends to hold the property for the long term, while finding more tenants to increase the occupancy rate.
Viva Land, which is helmed by former Capitaland veterans Eddie Lim and Chen Lian Pang, made a splash in Singapore in 2020 when it acquired the Robinson Point office building on Robinson Road from Tuan Sing for S$500 million.
Following the disposal, the $130 million CapitaLand Vietnam Commercial Value-Added Fund formed in 2017 will now be fully divested, with CapitaLand indicating that the vehicle achieved an internal rate of return of 34 percent, inclusive of fees.
“CLD firmly believes in Vietnam’s excellent growth prospects, and we are committed to being a long-term partner to the development of Vietnam’s real estate market,” he added.
After closing the commercial fund, Tay said CapitaLand Group is planning to launch more private equity funds in the country over the near term that will invest in offices, residential, logistics, urban developments, data centres and business parks.
The divestment will bring down CapitaLand Development’s Vietnam portfolio to two integrated developments, 16 residential developments with more than 12,000 homes in the country’s two biggest cities, as well as The Oxygen community mall in Ho Chi Minh City’s District 2.
While it scales down its office market exposure, the Singapore builder continues to expand its residential portfolio with at least two projects slated for launch in the first half– the first phase of its S$1.12 billion residential project in Binh Duong province near Ho Chi MInh City, as well as its Heritage West Lake luxury residential project in the capital.
Savills in its latest market report said office leasing activity in Hanoi remained slow last year as the market faced a prolonged lockdown at the same time that tenants were presented with the prospect of an influx of new supply. These factors combined to bring down average occupancy in the city during the fourth quarter by 5 percentage points compared to a year earlier.
Grade A average monthly rates in Hanoi remained flat at VND 760,000 per square metre during the most recent three month period, with the property consultancy projecting that companies from the tech, manufacturing and financial services sectors will drive office demand in Hanoi this year.