Vietnam Office Rental Market Still Challenging

by huyho
May 16, 2022
Market, Leasing Office Guide
0

Page Contents

In general, the office rental market in 2022 is expected to be quite optimistic with stable or slightly increased rents. By the end of 2022, the average rental rate of the whole market is expected to increase by over 30 percentage points year-on-year, higher than the growth rate of the period 2020-2021.

Office rental market in Hanoi 2022

However, the demand for the Hanoi office market still faces many challenges. In the Grade A&B segment, Hanoi recorded positive net absorption of about 1,169 m2 of floor space during the quarter, mainly thanks to large transactions in some Grade A office buildings. In general, most office buildings for lease had negative net absorption, or just rent out small and medium-sized offices (250-400 m2).

In the context that businesses are still under the prolonged effects of Covid-19 and the number of cases increasing rapidly in Hanoi, many businesses have decided to let employees work from home and temporarily suspend the need to rent an office. This caused the occupancy rate of Grade B offices to decrease by 0.2% compared to the previous quarter. Thanks to affordable rents, most office requests are concentrated in Grade B buildings located outside the CBD. Regarding tenants, the big transactions in Grade A & B segments mainly came from information technology and real estate businesses.

However, office rents still increased slightly. In Hanoi, office rents increased somewhat in both segments. In 2022, when businesses return to normal operations, some Grade A buildings have restored rents to pre-social distancing levels. Grade A office rent in the first quarter of 2022 reached 26.8 USD/m2/month, up 0.1% compared to the previous quarter. With the asking price higher than the average of the new office building BRG Tower, the average rent of Grade B also increased slightly by 0.9% compared to the previous quarter, reaching 14.9 USD/m2/month.

You can know more about the office rental market forecast here: Office Market Forecast in 2022

Office rental market in Ho Chi Minh City 2022

While in HCMC, new supply for the office market continued to be limited in the first quarter of the year. Only one Grade C building of 5,600 m2 was completed in Q1.22 and used as the owner’s headquarters, not offered for rent in the market. Both Grade A & B office segments did not record new supply with the total leasable floor area remaining at 1.67 million m2, of which the available space for lease was about 167,000 m2, mainly from Grade B building.

The trend of renovating existing buildings to increase floor space and upgrade buildings is increasingly popular in the context of limited land funds.

Worth mentioning, that rental demand is slow due to the prolonged impact of the pandemic. The vacancy rate in the Grade A segment increased slightly to 1,288 square meters, mainly in older buildings as existing customers reduced rental space while the Grade B market recorded many large transactions in new buildings, helping improve net absorption for the entire Grade A&B office market to a positive level of about 3,684 m2, but still fell sharply QoQ. Companies operating in the technology – information and manufacturing industries with foreign capital continued to lead the demand in the quarter.

However, the existing Hang B buildings are also quite cautious in their leasing strategy in the face of the challenge of demand decline in the first quarter of 2022 due to the prolonged impact of the pandemic.

Although facing a decline in demand, landlords, in general, tend to keep rents stable thanks to an optimistic outlook for the remaining 9 months of 2022. Rent is stable at 30.7 USD/m2/ month, a slight increase of 0.3% YoY and 0.2% QoQ.

You can know more about the HCMC office rental market here: HCMC’s Office Rental Market is Reviving

New buildings with pressure to fill vacancies tend to attract tenants with more incentive programs. The actual agreements are quite flexible on a per-transaction basis with support terms not limited to rent.

In the remaining 9 months of 2022, it is expected that three Grade B buildings in the Non-Central area will enter the market with nearly 70,000m2 of the leasable floor, contributing 4% of the total supply. Le Duan Avenue is expected to welcome another Grade A quality building to be used as the owner’s headquarters and not to be offered to the market.

Meanwhile, businesses operating in industries with reasonable growth rates such as information technology, e-commerce, and real estate will likely continue to lead the demand in the Hanoi office market.

For Foreign companies that want to start or expand businesses and look for an office in Vietnam: