Hanoi (VNS/VNA) - Vietnam saw positive performance inthe office market in its largest cities, Hanoi and HCM City, during the firstnine months of this year, according to foreign real estate research firms basedin Vietnam.

Savills Hanoi's report on the office market in the first nine months of 2023stated that the gross rent of 513,000 VND per sq.m per month increased by 2%quarter on quarter, primarily fuelled by an uptick in Grade A rent. Grade Arent increased by 2% quarter on quarter to 824,000 VND per sq.m per month,while Grade B and C rates remained unchanged.

“Office transactions are showing stable or even decreasing prices compared tothe same period last year, especially in certain buildings. Prospective tenantsshould consider this as an ideal time to lease office spaces or expand theirexisting offices,” said Hoang Nguyet Minh, Senior Director, Commercial Leasing,Savills Hanoi.

Occupancy increased by 1 percentage point quarter on quarter but fell by 2percentage points year on year to 85%. High-quality Grade A projects continuedto attract new tenants, particularly foreign companies scouting premiumlocations, according to Savills Hanoi.

Take-up in the third quarter of 2023 was the highest since 2020 at 44,500 sq.m.Grade A was the most popular product.
Leasing activity was active over the nine months. Manufacturingtenants secured the most deals and the largest total leased area, withinformation and communication technologies (ICT), finance, insurance, and realestate sectors (FIRE), and education tenants following closely behind.Relocation secured the most deals, and most tenants favoured the Secondary areadue to the availability of new, high-quality projects and more budget-friendlyrents while maintaining proximity to the central business districts.

The stock of 2.16 million sq.m of net leasable area (NLA) in the third quarterincreased by 1% quarter on quarter and 2% year on year after the entry of LotteMall West Lake Hanoi with 23,000 sq.m of NLA.

Since 2019, Grade B stock has increased by 5% per annum (pa), Grade A by 4% pa,and Grade C by 1% pa. The West was the largest supplier with a 41% share or875,800 sq.m of NLA, while the secondary had the most significant growth of 3%year on year.

Meanwhile, the vacancy rate of offices in HCM City reached 18% in the thirdquarter of 2023, with rents decreasing by between 0.2 and 2.2% quarterly,according to Knight Frank Vietnam, a leading real estate consultancy.

In its report on the HCM City office market in the third quarter of 2023,Knight Frank Vietnam predicted that in the fourth quarter, the office vacancyrate would increase to over 20% due to new supply in the Thu Thiem area in ThuDuc city, marking a 12-year high.

Specifically, in HCM City, rents decreased by 2.2% quarter on quarter for GradeA offices and 0.2% for Grade B offices, while the Grade A office vacancy rateincreased to 18.2% and that of Grade B rose to 11.6%. Currently, the Grade Aoffice segment has a total vacant floor area of about 73,000 sq.m and anaverage asking rent of 57.60 USD per sq.m per month.

Alex Crane, CEO of Knight Frank Vietnam, stated that a decrease in officerental prices had already been forecasted in 2022, so this is not a shock toinvestors. On the other hand, the new supply is welcomed by the market, as thecity has not had any Grade A office buildings since 2017. He commented thatthis period is too long for a large urban area like HCM City.

According to Knight Frank Vietnam, the total office floor area for rent iscurrently higher than it was in 2011.

It noted that the trend of reducing the average rent of Grade A offices ispartly due to the impact of the opening of new office buildings in the Thu Thiemarea, which have more attractive asking rents than the central area in District1.

The report also indicated that there would be another office building cominginto operation in the fourth quarter, providing an additional 50,000 sq.m of floorspace for the Grade A office market, pushing the vacancy rate to more than 20%by the end of this year. During the same period, Grade B office rental pricesare also expected to decrease by 6%, down to 32 USD per sq.m per month.

Savills Hanoi stated that by the end of 2026, Hanoi’s Grade A & B officemarket could witness 220,000 sq.m of additional supply, or a 13% increase fromthe current stock.
The supply of large-scale projects up to 2026 is expected to exertpressure on rentals, especially within the Grade A segment, which will welcomenine new projects, including 68,400 sq.m of green office space. Forecastssuggest that Hanoi Grade A and B occupancy might decline to 85%, leading to aslight reduction in rents.

Both HCM City and Hanoi have performed commendably, particularly when comparedto their regional counterparts that are chronically oversupplied. Both citiesare now poised to receive a refresh of quality supply that will, for the mostpart, accelerate obsolescence in poorer quality assets, according to SavillsHanoi.

Vietnam office markets benefit from structural drivers that can easily surpasshistorical averages. These include the continued growth of the banking andinsurance sectors, which traditionally occupy large office spaces, andlarge-scale relocation of government offices.

Savills also highlighted that more than 85% of Vietnam’s fastest-growingcompanies have ESG commitments, leading to a surge in demand for offices thatmeet green standards./.