**The Office Market in Ho Chi Minh City Heats Up**
According to CBRE Vietnam, the office market in Ho Chi Minh City (HCMC) witnessed signs of improvement in rental prices and occupancy rates in the first quarter of 2024. Although no new office supply was recorded, Etown 6 Building (Tan Binh District) is expected to open soon and has already secured around 20% in pre-leasing commitments.
Rental prices in HCMC showed signs of recovery, with Grade A offices reaching USD 47.2 per square meter per month (nearly VND 1.2 million per square meter), a 2.6% increase compared to the previous quarter and the highest Grade A rental rate in 15 years. Grade B offices have also seen an increase in average rental rates, reaching USD 26 per square meter per month (over VND 650,000 per square meter), a 1% increase compared to the previous quarter and a 2% increase year-on-year.
According to CBRE, the rise in Grade A office rents in HCMC is primarily driven by new buildings that have started to fill up. Additionally, some buildings that have completed renovations and upgrades are also expecting higher rental rates.
The HCMC office market is currently experiencing a shift in leverage, with tenants gaining a short-term advantage. |
Avison Young Vietnam’s report further highlights the increased activity in the HCMC office leasing market during the first quarter of 2024, with several projects nearing completion and expected to become operational this year.
Nhung Vu, Head of Office Services at Avison Young Vietnam, observed that the HCMC office market is experiencing a shift in leverage, with tenants holding the upper hand in negotiations in the short term.
However, rental rates are expected to continue rising in the medium to long term, prompting tenants to adopt a long-term workplace strategy, whether it involves new leases, relocation, office expansion, or even investment in their own buildings.
Savills Vietnam predicts a 7% increase in demand for office space in 2024. Tenants are increasingly seeking out new, high-quality buildings that meet sustainability standards and green certifications. Notably, sectors like finance and manufacturing continue to drive the market as major tenants amidst the current economic climate.
According to Knight Frank Vietnam, the office leasing market in HCMC continued to see positive momentum in the first quarter of 2024. Newly launched buildings have achieved notable absorption rates, and several successful transactions with lease areas reaching 10,000 square meters have been recorded in the city center.
Rental rates for Grade A offices increased to USD 58.06 per square meter per month, a 1.98% increase compared to the previous quarter and over 0.3% compared to the same period in 2023. The Grade B office segment reported healthy performance, with average asking rents at USD 34.31 per square meter per month and a vacancy rate of 9%.
**Tenants Gain More Options**
Leo Nguyen, Head of Tenant Representation, Strategy and Solutions at Knight Frank Vietnam, noted that it was rare to witness leasing transactions exceeding 10,000 square meters in the city in the past. However, in the first quarter of this year alone, three such transactions have taken place in newly opened office buildings. This indicates a growing demand for large office spaces as foreign businesses expand their operations. The surge in demand also reflects the positive business sentiment and optimistic outlook for Vietnam’s commercial real estate market.
Knight Frank Vietnam’s research shows that the majority of large transactions in the first quarter of 2024 were from tenants in the technology (75%), retail (9%), and pharmaceutical (6%) sectors, with most of them relocating their offices (94%) and seeking larger spaces (72%) exceeding 2,000 square meters. Many businesses are also opting for larger offices compared to their previous locations.
The HCMC office market is experiencing more active leasing activity compared to the Hanoi office market.
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Knight Frank Vietnam forecasts an addition of 80,000 square meters to HCMC’s Grade A office supply by the end of 2024. The ample supply in the Grade A segment, coupled with high asking rents, is expected to push average asking rents to around USD 60 per square meter per month, with a vacancy rate of approximately 27%. Meanwhile, Grade B offices are expected to see a gradual decline in asking rents, dropping to around USD 33 per square meter per month, with a vacancy rate of 13%.
“Many office buildings in HCMC have enjoyed occupancy rates of over 90% for the past few years. However, the increase in supply will significantly impact both landlords and tenants. Landlords will need to adapt to the changing market conditions and be prepared to offer more attractive lease terms. On the other hand, tenants will have more options and leverage when negotiating lease agreements,” said Leo Nguyen.
In terms of the upcoming quarters, CBRE Vietnam predicts that in the absence of new Grade A supply in HCMC’s central business district (CBD) in 2024, existing Grade A office rents, especially in the CBD, will benefit from this scarcity and continue to rise.
Meanwhile, the completion of Grade B projects in non-CBD areas is likely to keep average Grade B office rents in HCMC relatively stable.
Pham Ngoc Thien Thanh, Head of Research and Consulting at CBRE in HCMC, stated that the HCMC office market is experiencing more active leasing activity compared to the Hanoi office market, fueled by large-scale leasing transactions in newly completed buildings.
Duy Quang
