Recovering economy and the FDI influx pose pressure on rising office rents

In the past year, each city has two more high-grade office buildings in the central area, rising the total office space for lease in HCMC to 1.7 million square meters, 100,000 square meters higher than Hanoi’s total supply.

According to Savills, the office leasing market in central Hanoi and HCMC has been hit by a shortage of supply in recent years. The vacancy rate always remains at the minimum level, and it is tough to find large office space in the central area.

The recovering economy and the FDI influx into Vietnam have rapidly increased the demand for high-end office space. The office buildings are in full swing, and the occupancy rate of the whole market remains high.

This rate has continuously increased in the past two years and reached 94% in the fourth quarter (Q4) in Hanoi and 95% in all quarters of 2017 in HCMC. Notably, in the central area of Hanoi, the rate has reached 97%.

Apart from the significant customer sources from the finance, banking, insurance and real estate sectors, new demand-side factors also appeared in 2017.

In the general trend of the world and the region, technology and e-commerce companies are rapidly developing in Vietnam, employing a large workforce and demanding large working space. These two sectors also have the most impressive demand for office space in the last two years.

In Hanoi, the rented area of financial, banking, insurance and real estate clients accounted for 50%, followed by the manufacturing sector with 14%.

Also, according to this survey, the share of foreign tenants in Hanoi has increased from 45% in 2014 to 56% in 2017.

Savills forecasts that the operating capacity of the market will remain high in 2018 and office rents will tend to rise due to demand pressure.

Particularly, shortly, Hanoi will not have any specific office projects coming into operation.

Small offices in Hanoi disappoint tenants?

Since 2013, Grade C segment has seen the occupancy rate higher than Grade A and Grade B, remaining above 90% since Q2 2015 and reaching 99% in Q4 2017.

Up to 63% of Grade C projects have reached its maximum capacity, while the figures of Grade B and Grade A is only 30% and 36% respectively.

Grade C continues to record high capacity due to low rents and insignificantly rising supply in recent years.

However, a survey shows that the customer satisfaction for this segment is relatively low due to the degraded quality of Grade C office buildings, the neglected management, operation and customer care services.

Grade C average rents are at roughly US$12.35/square meter/month, much lower than Grade B (roughly US$17.2/square meter/month) and Grade A (roughly US$27.78/square meter/month).

Grade A and B supplies averagely rose by 1.6% and 5.8% per year respectively over the past four years,while Grade C supplies have not recorded new supplies since Q4 2016.