Office rents keep rising in Ho Chi Minh City and Hanoi

By Ha Linh - Jul 12, 2019 | 10:19 AM GMT+7

TheLEADERDemand is strong enough to absorb nobtable new supply.

Office rents keep rising in Ho Chi Minh City and Hanoi
Demand for office space in the second city remains strong.

Ho Chi Minh City’s office market welcomed 42,754 square mtetres of new supply in the second quarter, bringing the total office stock to over 2.23 million square metres, according to consulting firm JLL.

While the non-CBD sub-market has continuously recorded new supply since the end of 2018, the supply of Grade Aand Grade B in central business district remained restricted with no new supply recorded in seven consecutive quarters.

Deutsches Haus Ho Chi Minh City is the newest in central business district, completed late last year.

Despite a notable new supply entering the market, the occupancy rate in the second quarter of 2019 just recorded a slight decrease to 95.5 per cent. This implied that demand on the market was strong and sufficient enough to absorb new supply.

Grade A and Grade B average rents continued to rise in the second quarter, to $28.5 per sqm per month, up 2.5 per cent against last quarter and 5.2 per cent year-on-year.

After a period of steady growth, Grade A rent has grown at a slower pace, at 1.2 per cent quarter-on-quarter. Meanwhile, average rent of Grade B sharply increased by 3.5 per cent year-on-year, mainly driven by the acceleration in CBD rents.

In the second half of 2019, the market is expected to welcome a wave of new completions which may result in a decrease in overall occupancy rate. Flexible space is expanding, concentrating in citywide office clusters. In the short term, demand is set to pick up on the back of positive economic prospect.

However, JLL claims that the prevailing global economic uncertainty may compress office demand. Besides, the enriched new supply coming on stream in the next three years will put some pressure on the performance of the existing supply.

Accordingly, developers should be flexible in leasing strategy to capitalize on the market. Green and sustainable office concept are making its way to become an inevitable trend of future completions

The occupancy rate of Hanoi office felt slightly to 92.3 per cent due to new opening buildings entering the market. Around 21,500 sqm office space was newly absorbed during the quarter, with nearly two-thirds was credited to Grade B office.

Leasing activity was mainly involved in Grade B buildings, especially those in the outer parts of the city, owing to the insufficient supply in the CBD area. One of the most notable deals was recorded in Truong Thinh Building in Cau Giay, an outskirt district, with 1,100 sqm taken by a single tenant.

New supply entered the market was the first quarter since the latest Grade A building completed in 2016 that Hanoi office market welcomed a new Grade A building in CBD, the Thai Holding Tower in Hoan Kiem district with 25,000 sqm of floor space.

Additionally, following two quarters with no new supply, Grade B segment also recorded 30,600 sqm newly added to the basket, of that the majority located in the non-CBD area

As of the end of second quarter, the total supply of Hanoi office stood at nearly 2 millin, with Grade B contributing up to 60 per cent the total stock.

Rental rate maintained its upward trend Thanks to stable demand, paired with limited supply, Grade A office enjoyed the highest upswing with a growth of 5.7 per cent year-on-year.

However, the rent contraction in Grade B segment of 2.8 per cent, a result of lower-than-average rent in new buildings in non-CBD, has offset the former increase and kept the overall market rent unchanged compared to the same period last time.

In CBD area, owing to limited supply, average rent in the sub-area recorded significant improvement of 3.5 per cent year-on-year.

For the second half of 2019, the office market is expecting more completions, in which all are located in non-central districts. The buildings are concentrated on Cau Giay and Nam Tu Liem districts, the two rising office-clusters of Hanoi.

Therefore, JLL expects that the rent of those in non-CBD area remains stable or increase insignificantly. However, the buildings in the downtown area may still enjoy a better rise, which in turn continues to help the rental rate to inch up.