Ho Chi Minh City: Office For Rent Back To “Throne”

Reports from market research units in the first 6 months of 2017 show that the office rental segment has begun to return to the throne, with the strongest demand coming from the manufacturing sector, real estate and media, with 19%, 24% and 10% of total demand respectively.

Supply decreases, demand increases

Data from the Ho Chi Minh City Real Estate Association (HoREA) shows that the office leasing market is developing quite stable in this area. Specifically, total office supply for lease is about 1,8 million sqm. In the first six months, grade A office rents averaged $37/sqm/ month, grade B was $ 22/sqm/month, slightly increased by 1,2 – 4,8% over the same period last year.

In addition, according to a reporter’s survey, in the last 6 months in Ho Chi Minh City does not appear new supply for office segment for rent. Specifically, there is no new supply for Grade A offices and only one additional supply for grade B is Viettel Complex Building in District 10. The project has 65.971 square meters of total floor area (GFA), equivalent to 40.620 sqm of used floor area (NLA) for office space and 10.000 sqm for retail space.

However, 14.000 sqm of NLA office will utilize by Viettel so only 26.620sqm of office space rent out. This area will be included in the supply for the entire B market this quarter.

The office rental market has increased competition with new supply and rents in both Hanoi and Ho Chi Minh City. Ho Chi Minh

General commented with HoREA, real estate market research report in the first half of 2017 of CBRE Vietnam showed that the office market performance was stable in the second quarter, with the rental activities taking place excitingly. The asking rents for both grade A and grade B declined, but increased over the same period last year.

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“This steady supply quote reflects the market, especially on the supply side, preparing to cope with new supply coming in the second half of 2017 and expects that a slight drop in prices will help fill completely existing buildings before new supplies enter the market. Grade A recorded a vacancy rate of 5,3%, down 1,1% quarter-on-quarter and a slight increase of 1,2% over the same period last year, “CBRE Vietnam forecasts.

For Grade B, CBRE recorded a vacancy rate of 4.0%, an increase of 0,4% over last year and 1.4 percentage points from the previous quarter. Grade B has increased vacancy compared to the same period last year due to the appearance of two new Viettel Complex supply in this quarter and the Sai Gon Giai Phong building from the previous quarter has not been fully filled. Net real occupancy in this quarter was positive, with Grade A reaching 3.585 sqm NLA and Grade B 11.948sqm NLA.

In addition, according to CBRE Vietnam, new rental activities accounted for 21%, up sharply from 9% in the previous quarter with demand coming mainly from the real estate sector, accounting for 55% of total new lease demand.

Office rental market tends to increase again

Notably, the demand for large leasable floor space is increasing with the most popular leasable area being in the range of 300 – 700 sqm, while demand for leasable areas of 700 sqm or larger is still stable.

“Looking ahead, the market is exploding with new opportunities for both developers and tenants when the number of new high-quality supplies continues to hit the market in the second half of 2017,” said Dang Phuong Hang, general director of CBRE Vietnam.

The “throne” in the market

The strong growth of the office segment showed that Vietnam’s economy, especially Ho Chi Minh started to accelerate development. According to the Department of Planning and Investment of Ho Chi Minh City in the first 6 months of 2017, 1,800 new enterprises were established.

With this number, the demand for office rental increases is inevitable. In fact, good rental rates have recorded with new entrants to the market recently.

“As many businesses are setting up now, small businesses need office space in office buildings will increase, this is the real demand of businesses for the office leasing segment,” Economist Nguyen Tri Hieu said.

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Real estate rental segment is returning to the throne due to the scarcity of supply and demand

In addition, many economists said that the segment of office leasing increased sharply in the first 6 months partly because the Ho Chi Minh City requires 2,000 businesses that are located in apartment buildings to move out of apartments. This has had a great impact on the development of the office lease segment.

Mr. Nguyen Van Toan, Director of Asia Pharmaceutical Company in Ho Chi Minh City.  said that the company had previously its office in an apartment building, however, following a decision by the city government, the company rented an office building in District 3 to locate its headquarters.

“If you choose to rent a house on the street as an office, the cost will be very high, while the demand for our area is not large. Therefore, the company chooses to rent class B office, saving both cost and image of business become more professional,” said Toan said.

In fact, many businesses in Ho Chi Minh City is medium and small with the demand for office space mainly in class B. Represent a unit renting office in HCMC. HCM City, the demand for office space in the city is very high, in which the small offices, near the center selected a lot. However, the demand is high while the supply is quite limited.

In this context, Vu Ngoc Huong, Chairman of the Board of Directors of Venus, an office lease unit said: “The development of the suburban districts will continue to be a trend when renting an office in the central area becomes more difficult.

This will be an opportunity for rents to increase with coastal projects. In fact, self-extracting and leasing projects are gradually becoming a prominent trend for 2017″.

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