Cushman & Wakefield forecasts Vietnam's buoyant office property market in 2018

Asia Pacific’s office property markets are expected to stay strong in 2018, driven by healthy levels in office occupancy and rent growth as new supply peaks during the year, according to Cushman & Wakefield’s forecast.

The synchronized global recovery is likely to favor the region’s most connected financial and business gateway cities. Banks remain better-positioned than they have been in a long time, with higher profitability and earnings growth amid better economies, more constructive regulatory environments, and further rate hikes on the horizon. Rallying stock prices on the region’s exchanges are also boosting sentiment.

The region’s emerging markets are also looking up, with major markets in Vietnam continuing to command the highest rents. The office sector in Ho Chi Minh City will see its vacancy rate fall to ultra-low levels, pushing rents to heights not seen since 2009, and we estimate that this could spell an increase of up to 20 per cent for some Grade A properties in 2018.

“We see high demand for new quality buildings with good locations, landlords’ bargaining power has returned, enabling them to increase rents. This vacancy pressure will last late into 2019 so tenants will need forthright strategies and creative solutions in order to avert serious increases in rents,” said Alex Crane, Managing Director of Cushman & Wakefield Vietnam.

Besides, Cushman & Wakefield forecasts that office rents in the region’s gateway cities of Singapore and Hong Kong will continue to live up to their pricey reputation.

Occupier demand accelerated in many markets, with office absorption levels across the region posting their highest levels in 2017, as a solid economic backdrop generates broad-based employment annual gains of nearly one million. While central banks will begin normalizing monetary policy, the low inflation environment will continue to sustain the strength of the property markets in the region.

In Singapore, rent recovery is set to gain traction as its supply pipeline begins to moderate in 2018. Coupled with the strengthening of the Singapore economy and business confidence, the pace of rental growth will accelerate the fastest in the region at approximately 10 per cent.

Hong Kong’s Greater Central office property prices and rents continued to climb in 2017, and such upward momentum is expected to extend into 2018. Demand from Chinese corporates will remain the growth engine. Many of the Mainland Chinese firms are less sensitive to the high office rents, especially with their desire for a prestigious Central location.

Australia’s major markets, Sydney and Melbourne, will also report record rents in 2018 with vacancies among the lowest in the region. Their fundamentals will remain solid due to high occupier demand and limited supply completions in 2018.

Even in Tokyo, where incoming new supply is expected to upend the rental-growth story over the last five years, any rent decline, however, is expected to be modest.