Rising demand for larger office spaces and a willingness to invest in them speak to the confidence and potential of the Ho Chi Minh City office market, wrote analysts from consulting firm Knight Frank.
New buildings entering the market have raised the asking rents for Grade A office space by 1.98% quarter-on-quarter and 0.3% year-on-year, while vacancy rates have been reported at 16.7%, with an absorption of nearly 32,000 square meters in the reviewed quarter.
This heightened absorption is mostly driven by good pre-leasing activities in The Nexus, a high-end office building in Ton Duc Thang street, with major transactions from 2,000 to 10,000 m2.
Meanwhile, Grade B space recorded a healthy performance, with asking rents at $34.31 per m2 per month, a quarter-on-quarter rise of 0.5%.
"In the past, it was rare for us to see big transactions of over 10,000 m2 in the city, but this year, we have seen three such deals in new buildings. These deals indicate a growing need for substantial office spaces, due to the expansion of foreign businesses," said Leo Nguyen, Knight Frank’s director of occupier strategy and solutions.
"This surge in demand represents a potential uptick in business activities and a positive outlook for Vietnam’s commercial real estate market,” he commented.
Major transactions in the reviewed quarter came mostly from the technology sector, retail, and pharmaceuticals, mostly for relocation purposes with leasing sizes of more than 2,000 m2. Many companies that have chosen to relocate have also opted to lease more space than in their previous locations.
“This suggests that these companies are experiencing growth and need additional space to accommodate their expanding operations. While some businesses may be facing challenges, others are seizing opportunities and positioning themselves for growth in the country," said Leo.
"The surge in demand for larger office spaces and the willingness of companies to invest in these spaces speak to the confidence and potential of the HCMC office market," he added.
Leo cited prime examples of excellent leasing activity across the city, from the new office buildings in Thu Thiem – The Hallmark, in central business district (CBD) – The Nexus, and in Office Haus, a project on the fringe of the city, which have achieved occupancy rates of approximately 70-80% in a relatively short time after opening.
Looking forward to the end of the year, new supply for Grade A will come from The Sun Tower in the CBD with 80,000 m2, and 52,780 m2 for Grade B with Etown Central and D’Saint Raffles.
Massive new supply in Grade A is expected to hike up asking rents and vacancy rates to the range of $60 per m2 per month and 27%, respectively. Grade B performance is expected to reflect gradually decreasing asking rents and vacancy rates in the range of $33 per m2 per month and 13%, respectively.
"Many office buildings in HCMC have been over 90% occupied for several years. However, given the increased available space, occupancy rates are expected to drop in older buildings when tenants move to new buildings.
"Ultimately, the increase in available office space will have significant implications for both landlords and tenants. Landlords will need to adapt to the changing market conditions and be prepared to offer more attractive leasing terms. Tenants, on the other hand, will have more options to choose from and more bargaining power when negotiating lease terms," Leo observed.