Surge in demand for office space signals business confidence in Ho Chi Minh City

By Minh Triet - Mar 27, 2024 | 11:11 AM GMT+7

TheLEADERBusinesses in the southern commercial hub are investing more in upscale, larger office spaces.

Surge in demand for office space signals business confidence in Ho Chi Minh City
Grade A buildings are reporting higher rentals. Photo by Hoang Anh

Businesses in Ho Chi Minh City are showing a remarkable increase in demand for larger office spaces, signaling a resurgence in business confidence and expansion plans in the heart of the city.

According to market research conducted by Knight Frank Vietnam, there has been a noticeable scarcity in leasing transactions for spaces exceeding 10,000 square meters in Grade A buildings in the city center in the past.

However, the first quarter of this year has witnessed three such leasing deals in newly inaugurated office buildings.

The Nexus, one of the two newly introduced Grade A buildings alongside VP Bank Saigon Tower, recorded lease transactions ranging from 2,000 to 10,000 square meters even before its grand opening.

During the initial three months of the year, businesses have signed new leasing contracts for nearly 32,000 square meters of Grade A office space.

The monthly rental rates have also seen a surge to $58 per square meter, marking a 1.9 per cent increase compared to the previous quarter.

Additionally, over 53,000 square meters of new Grade A office space were made available for leasing during the quarter.

Leo Nguyen, Director of Occupier strategy and solutions at Knight Frank Vietnam, noted that the rapidly increasing demand for large office spaces in Ho Chi Minh City is primarily driven by foreign enterprises expanding their operations.

He emphasized that the steep rise in demand reflects a promising business environment and optimistic prospects for the commercial real estate market in Vietnam.

"These companies are evidently growing and require additional space to expand their operations. The surge in demand for large office spaces demonstrates confidence and potential in the Ho Chi Minh City office market," added Leo.

Several new buildings have achieved an average occupancy rate of 70-80 per cent shortly after their launch, including The Hallmark in the Thu Thiem peninsula, The Nexus in District 1 and the OfficeHaus project in the upscale urban area of Tan Phu district.

The majority of large leasing transactions in the first quarter have come from the technology sector, followed by retail and pharmaceuticals. Most businesses relocating offices require spaces exceeding 2,000 square meters.

By the end of the year, an additional 80,000 square meters of Grade A office space from The Sun Tower project and 52,780 square meters of Grade B office space from projects such as D'. Saint Raffles and Etown Central will be added to the market.

Knight Frank predicts that the monthly rental rates for Grade A offices are expected to rise to $60 per square meter, with a vacancy rate of approximately 27 per cent.

According to Leo, many office buildings in Ho Chi Minh City have maintained occupancy rates of over 90 per cent for several years. However, the increase in supply is anticipated to gradually reduce this rate in older buildings as tenants transition to newer projects.

Meanwhile, the Grade B office segment currently has a vacancy rate of 9 per cent, with an average rental rate remaining relatively stable at around $34.3 per square meter.

Knight Frank forecasts a gradual decline in rental rates for Grade B offices, reaching approximately $33 per square meter, with a vacancy rate of 13 per cent.