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HCMC’s Office Rental Market is Reviving

HCMC’s Office Rental Market is Reviving

The office rental market in Ho Chi Minh City is recording a recovering trend and is expected to continue to be active in the coming years’ thanks to high rental demand following the return of economic growth.

Data of the office rental market

Data of the office rental market

According to data, the commercial real estate market in Ho Chi Minh City has recovered strongly since the lockdowns and economic disruptions in 2021. The performance in the first quarter of 2022 shows that the occupancy rate has returned to normal. Regarding the pre-pandemic level, rents increased steadily for investors.

Accordingly, the rent of Grade A office space in the first quarter of 2022 increased by 0.2% compared to last year and 0.56% compared to the previous quarter. Despite this modest increase, developers who can hand over high-end office space in the next 18 to 24 months will certainly reap great rewards. The occupancy rate of office buildings in Ho Chi Minh City is being maintained at over 90%, and rental rates are expected to increase by 15-20% by the end of 2023.

Specifically, Grade A office space across the city currently has an average rental price of 55.31 USD/m2, the highest in central districts at 62.54 USD/m2. In the Grade B segment, the average price of the whole city is 34.03/m2, the central area is 43.37 USD/m2. Thu Duc city is transforming strongly and will create a revolution in rents in the future when the Thu Thiem area is fully developed. Currently, the rent for Grade B office space on Thu Thiem is 30.08 USD/m2.

Rents are expected to increase further due to the scarcity of supply in the market, with vacancy rates for Grade A and B offices at only 10% citywide. The shortfall in supply is forecasted to continue until 2023 and in the next two years, Grade B office space will still be in short supply. It will not be until 2025 or later that the city will have more supply of rental scale.

The growth rate of office supply in 2021 has been slower than in previous years. In the coming time, new supply will be improved with a series of projects in non-CBD districts such as Phu Nhuan, District 3, Binh Thanh, and District 7 with many projects with medium size and reasonable rent. From the beginning of 2022 until now, the office market has not recorded a new supply, but the occupancy rate is still high at over 90% of the whole market.

The growth rate of the office rental market

The growth rate of the office rental market

Assessing the growth rate of the market in the past time, the slow increase in supply due to the Covid-19 pandemic has significantly impacted many areas, causing the demand for office rental to decrease. Tenants tend to reduce office space or move to buildings with more affordable rents. New tenants are also delaying plans to open a company or develop a project. With Vietnam’s open-door policy and pandemic control capacity, businesses are seeing the attractive potential of the market and have quickly taken positive actions earlier this year.

The new supply tends to expand to non-CBD areas, with suitable and competitive prices. Demand for office space mainly comes from the Distribution, Information Technology, Communication, and Manufacturing industries. In the period 2022-2023, new projects in Phu Nhuan, Binh Thanh, District 7 will be an alternative investment destination for District 1, which is very scarce inland funds. Although there are many new projects the scale is not too large, so the new supply expert will still be well absorbed and not drag the market occupancy rate down.

The growth potential of the office rental market is also forecasted to be optimistic. The Center for Human Resource Forecasting and Labor Market Information in Ho Chi Minh City estimates that if the Covid-19 epidemic is well controlled, the labor demand in Ho Chi Minh City in 2022 will be 310,000 jobs. mainly from commerce, real estate, and electronics manufacturing. These industries, along with the information and communication technology industry, also account for the majority of new and additional FDI capital, so they are likely to become key industries that generate demand for office space.

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