High-quality office supply in Ho Chi Minh City (HCMC) is not keeping up with demand
According to a market research by Colliers International, the office market in HCMC has continually improved from the start of 2019, and Q2 was no different. Average asking rent has increased at a rate of roughly 2% to 2.5% on a quarterly basis, driven by increased demand for high quality grade-A and grade-B offices, which is outpacing supply. Average asking rent for grade-A offices in HCMC has exceeded 55 USD/sqm/month, while grade-B has surpassed 25 USD/sqm/month. The office market in HCMC is nearing its capacity, with average occupancy among grade-A office buildings at 95%, and 88% among grade-B office buildings.
As abovementioned, the supply of grade-A and grade-B office buildings in HCMC has not been able to keep up with demand for high-quality offices. There is currently more than 300 thousand sqm of grade-A office space (of which only 15 thousand sqm is available); and more than 1.4 million sqm of grade-B office space (of which only 170 thousand sqm is available) in the city.
Demand for grade-A office in HCMC has only grown in recent years. For example, Deutsches Haus welcomed CapitaLand and Sunshine Group as tenants in Q2 2019, and 92% of the building’s 30 thousand sqm of leasable area has been occupied. Another notable lease transaction was The Executive Centre, a major flexible workspace operator, who became the first pre-leased tenant in Friendship Tower.
Friendship Tower, Ho Chi Minh City.
By the end of 2019, two additional grade-A (Friendship Tower and Lim Tower 3) and two grade-B (Crescent Mall Phase 2 and E.town 5) office buildings is expected to be opened in HCMC. Altogether, they will bring more than 113 thousand sqm of leasable area to the office market in the city. However, it is likely that demand will keep on outpacing supply in the grade-A and grade-B office segments, so average asking rent should continue to increase steadily in the foreseeable future.
Rising demand from small to micro tenants in Hanoi favors coworking and serviced office
The second quarter of 2019 ended with many positive signals in the Hanoi office market, fueled by future supply growth and healthy demand for both grades. Average net asking rent of Grade A increased slightly 1.4% to USD 29.9/sqm/month compared to Q1 while Grade B’s rent remained relatively static at USD 18.6/sqm/month. Average occupancy rate continued to show an upward trend across both grades. While Grade A’s occupancy rate was up 3ppts on a quarterly basis, reaching 94%, Grade B experienced a slight improvement of 0.3ppt q-o-q, staying at 82%. The accelerating trend in both rents and occupancy rates is expected to continue in the next coming periods given solid demand and favorable economic condition.
There was no new supply was recorded in 2Q 2019. However, some new buildings such as Thai Square (Grade A) in Hoan Kiem and Detech Tower 2 in Cau Giay district still have a lot of vacant areas with occupancy rates of nearly 70%. Although the demand for the office market has not cooled down in Hanoi, there are still many options for businesses that want to open offices. The current supply pipeline is standing at approximately 1,255,400sqm NLA from both grades with Grade A accounting for 33% and Grade B making up 67% of the total stock. It is predicted that a large amount of additional supply would be coming to fruition in the next quarter as many office projects which were due for completion rescheduled their construction progress at the end of 2019. For example, Handi Resco Tower.
Thaisquare building, Hanoi.
The Hanoi office market is experiencing solid occupier demand levels underpinned primarily by inbound tenant migration induced by the new supply of quality office space. Additionally, large amounts of infrastructure work in the capital city will continue to attract high caliber office tenants to the market. Banking, finance and insurance are the most active industries in expanding their office space in the capital city. With average annual growth rate of approximately 10% in the labor forces in these industries over the past 10 year, demand for office area is expected to increase in the upcoming periods.
In the next quarter, due to strong demand, rents for Grade A and B office segments in Hanoi are expected to continue to increase. The area in the west of Hanoi is paid attention by investors during the period when land fund in the center is increasingly narrow. Two future supplies which are Capital Place (Grade A) and Friend’s Tower (Grade B) are rated as capable of completing on schedule and are expected to supply more than 100,000 sqm. The shifting attitudes of business and employees, as well as the constantly evolving technological and business environment, is continuing to drive demand from small to micro tenants. This has created opportunities for coworking space and serviced office providers.
Despite being small in scale, demand for office space in Danang can only increase
In terms of rent, thanks to the entrance of the new Grade A building - Hilton Bach Dang at the end of 2018, the average asking rent in Grade-A buildings in has been increased significantly to 25USD/ sqm/month. The occupancy of Grade-A office is reflecting positively with 94%. Grade-B and Grade-C achieved around 92% and 90%, respectively.
As Da Nang is Vietnam’s third largest economic center, the demand for office space in Da Nang can only increase.
There was no new supply in the second quarter of 2019; therefore, the office market in Da Nang remains small in scale – with approximately 88,000 sqm of NLA from 25 office buildings. The majority of office buildings are mainly focused on Hai Chau District, account for 75% of the total market share in Da Nang, which dominate the market; followed by Thanh Khe District with 20,600 sqm. Indochina Riverside Tower and Hilton Bach Dang are two Grade A buildings which provide approximately 9,000 sqm NLA, with 10% of market share. The Grade B and Grade C sectors account for 44% and 46% of market share respectively.
Most of the demand for Grade B office buildings stemmed from software, IT, financial services and construction related companies while demand for Grade C building mainly came from NGO, IT and construction companies. As Da Nang is Vietnam’s third largest economic center, the demand for office space in Da Nang can only increase. Most of demand will come from the software, information technology, and financial service sectors.
Generally, office market in Da Nang is developed slowly with limited demand and supply. In terms of future supply, Vien Dong Meridien is slated to come online in 2019, providing approximately 6,000sqm office space to the market.
