Office rents in HCMC return to pre-pandemic levels

The commercial real estate market in Ho Chi Minh City is expanding, with rents rebounding to pre-pandemic levels due to new supply shortages, according to property services provider Knight Frank.

Grade A office rent has reached an average $57.71 per square meter in the second quarter of 2022, up 5.2% year-on-year, and returning to 2020 levels, the consultancy noted in its recent report.

The market recorded no additional supply of grade A offices during the first half of this year to help reduce price pressure. Grade A vacancy rates are currently at 6.6%, down 0.5% from Q2/2021, when the city entered a protracted period of social distancing.

Grade A office rent in the central business district (CBD) was $62.67 per square meter in Q2/2022, while the South Saigon region recorded $34.09 due to larger and more diverse premises. Both grew slightly from the previous quarter, the report noted.

Tenants typically prefer central locations. However, if they have a restricted budget and want a floor space of 1,000 square meters or more, they would have to look outside of the core region, said Leo Nguyen, director of occupier strategy and solutions at Knight Frank Vietnam.

Meanwhile, grade B office rent was an average $33.79 per square meter in Q2/2022, up 5.9% from last year, but down 0.7% from the previous quarter.

The broker noted that grade B rents are lower in the CBD and surrounding areas to entice tenants, with the office vacancy rate reaching 8.2% at the end of the second quarter, up 0.7% quarter-on-quarter.

Tenants tend to relocate workplaces away from the city center, or provide flexible working conditions, all contributing to a lessened burden on the office market.

"The absorption rate of around 4,000-square-meter grade B offices is mostly derived from the CBD's vicinity and other non-CBD regions," Nguyen noted.

The survey also shows that most substantial office leases during the period focused on technology (44%), co-working spaces (14%), construction (13%), and real estate (12%).

Office rents in HCMC rebounded in the context of the city's GRDP (gross regional domestic product) rising 5.73% in Q2/2022, and 3.82% in the first half of the year, according to the city's People's Committee.

Knight Frank forecasts that the average rents for grade A and B offices would follow two distinct paths in the coming years. The former is likely to rise further until the market sees an increase in supply in 2023 and 2024. Meanwhile, the latter may remain stable before falling in the next two years.