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New Supply Expectations of Grade A Offices in HCMC

New Supply Expectations of Grade A Offices in HCMC

From 2022 to 2025, Grade A office space will have more positive developments in supply in addition to increasing rental demand in the future.

Forecast of Grade A office space to 2025

Forecast of Grade A office space to 2025

By 2025, the office market for lease in Ho Chi Minh City will record an additional 550,000m2 of floor space from 21 new projects, of which 11 projects outside the center account for 48% of the total area. Four large-scale Grade A projects will enter the market from 2023 onward, with an average floor area of ​​67,000 m2/project, accounting for 49% of the total future supply.

The Hallmark is a Grade A office building to be launched in 2022, with great potential for the office market in Ho Chi Minh City.” Thus, this is considered a rare Grade A office building to offer the Ho Chi Minh City real estate market. Ho Chi Minh City this year in the context of the limited supply of Grade A.

In 2022, a large amount of supply will enter the office market, but mainly from Grade B and Grade C offices in non-CBD areas, this figure is approximately 357,000 m2, accounting for 76%. The rental price of the whole market is still on the rise, while the supply of high-end, Grade A office space is still limited this year.

In the current context, some investors may increase prices shortly, because the central area will no longer have Grade A offices for rent, the capacity of previous office buildings is almost full. This can be understood that the area, capacity, and rent of Grade A offices in the central area (District 1, District 3) will reach very high thresholds shortly. The shift to suburban areas such as District 2, District 9 (now Thu Duc City), District 7 is considered an easy-to-see trend in the future.

Factors affecting Grade A office

Factors affecting Grade A office

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 Electronic Manufacturing. These industries, along with the Information and Communication Technology industry, will also account for the majority of new and additional FDI in 2021, so they are likely to become key industries creating demand for rooms.

There are many factors affecting the trend of moving to the out-of-central area. Firstly, facing the limited primary supply that has lasted for more than 5 years, the market has solved the shortfall with the secondary supply. Second, the quality of non-CBD buildings is increasingly outperforming those of old projects in the area or becoming more and more similar to central areas, plus moderate rents, attractiveness for residents. These projects are on the rise. Third, the impact on this trend is the availability of demand for the office market and a shift in tenant structure.

In the past, when the main customer groups of the office market such as real estate, finance, banking, education… always needed convenience in trade, location in the central area was always a factor. priority for them. However, when there is a structural change due to the epidemic, as an inevitable change of the market, many tenants have switched their services to digital platforms, fintech, IT… This customer is increasing.

Figures and the total supply of Grade A office market

Figures and the total supply of Grade A office market

Distribution accounted for 29% of the market share, Information and Communication Technology accounted for 20% and Manufacturing accounted for 11%. Most of these rentals come from businesses to expand office space or establish new ones. By the end of 2021, each of the Information and Communication Technology, Distribution, and Manufacturing industries will account for 13% of the total leasable area in Grade A and B projects.

Total office supply in HCMC is more than 2.4 million m2, stable quarter-on-quarter and increasing 5% YoY. Although the pandemic has affected the office market, the activity situation in 2021 is still high. The occupancy rate in 2021 will reach 90%, down 3 percentage points compared to last year and the average rental price will decrease 3% YoY to about VND715,000/m2/month. All 3 grades have average rents down 1% year-on-year in 2021.

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