Vacancy rates for Grade A and B office space to hit double digits in HCMC: Knight Frank

An estimated 130,000 m2 of Grade A office space will be released onto the Ho Chi Minh City market in 2024, a 35% increase of inventory, while Grade B is forecasted to receive 57,780 m2.

This new supply is likely to force vacancy rates for both grades in the city into double digits, in the range of 20% for Grade A and 14% for Grade B for the next three years, according to global property consultancy Knight Frank.

2023 ended with no new grade A buildings joining the market, with two under-construction projects due in Q1/2024 - Nexus and VP Bank Tower - both located at 3B Ton Duc Thang street, District 1.

In the reviewed quarter, rent performance was marginally affected, with some existing Grade A buildings in the CBD lowering their asking rents in order to compete with vacancies elsewhere in the market and the coming new supply. These adjustments deflated the average asking rents to $56.93 per m2 per month from the previous quarter’s $57.63 per m2 per month, down 1.21% quarter-on-quarter and 1.4% year-on-year.

The Grade B segment also saw no new supply, with resulting in asking rents of $34.14 per m2 per month and a vacancy rate of 11.3%. Grade B rents increased quarterly and yearly at 0.29% and 1.4% due to the lack of new supply. Existing landlords also leveraged both returned space and upgraded efforts to increase their asking rents prior to new supply joining the market next year.

“Despite landlords’ efforts, the new supply coming in the next few years means we will see a flight to quality from Grade B to Grade A. This shift will put pressure on rents, especially existing and older buildings, across both grades,” said Leo Nguyen, director of occupier strategy and solutions.

Last year’s major transactions mostly saw tenants from banking, insurance, and technology relocating (62%), whereas finance and oil & gas tended to renew (19%). Expansion (16%) and new acquisition (3%) came from a variety of industries. Spaces larger than 2,000 m2 accounted for 63% of major transactions, followed by 1,000-2,000 m2 (25%) and 500-1,000 m2 (12%).

Looking forward until 2026, the market is expected to receive 130,000 m2 of new supply for Grade A, coming from The Nexus, VP Bank Saigon Riverside and Sun Tower in 2024 and 80,410 m2 from Alpha Town and Spirit of Saigon in 2026.

2024 will receive 130,000 m2 of Grade A space, a 35% increase of inventory, while Grade B is forecasted to receive 57,780 m2. This will have different effects on rents for each class, with Grade A expected to drop and put continued pressure on Grade B.