Demand for rental office continues to rise

Vietnam’s rental offices exceeded other countries in 2017. The end of 2017 marked a transformation of the condominium market from robust growth to more sustainable growth with high profit.

Demand for rental office continues to rise

The positive trend still maintained in the first six months of 2018 and economists said leasing office market would grow more. One of the reasons is that limited supply.
According to CBRE Vietnam, the current trend suggests inadequate supply of grade A buildings. Specifically, in the first quarter of 2018, grade A buildings was just 382,763 square meter and 813,362 square meter for grade B buildings in Ho Chi Minh City yet in the next quarter, no new building for leasing will be inaugurated.
It is forecast that from now to end of 2018, just two grade B buildings will be operative in HCMC but not much space for leasing because investors will use it as their office.
There was no new supply in Ho Chi Minh City’s office market in the second quarter of the year, according to CBRE’s Q2 Quarterly Report; accordingly, rent price skyrocketed in past time. For instance, in the first quarter, it were $39.71 per square meter per month for grade A building and $22.35 per square meter per month for grade B building.
With such price, there has been an increase of 3.5 percent q-o-q and an increase of 7.4 percent y-o-y. for grade A building.
While in the second quarter, grade A rent price increased by 7 percent against the previous quarter and 17 percent compared to the same last year because new buildings are soon filled out and new supply is quite rare.
According to CBRE, in first six months of 2018, no supply of grade A and B buildings. It is expected that in last months of the year, buildings with 125,000 square meters will be supplied bringing up the rental office area to 1.4 million square meter.
Though total new supply showed a decrease, good product configuration helps the market to maintain good absorption. According to James Lang LaSalle (JLL) Vietnam report, average occupancy rate of office buildings in the HCMC achieved greater than 95 percent occupancy. This showed an extremely high demand in the market for both Grade A and Grade B office submarkets.
Especially, net absorption in grade B building is thanks to giant rent area in newly buildings with 9,000 square meter filled out by local firms, foreign companies and Non-government organizations.
Economists valued that demand for rent building will maintain high, more companies are seeking big and high quality leasing area; consequently, rent will go up by 2 percent annually and all buildings will be filled out.
Marketing research companies’ statistic, more buildings were built in 2014-2016 and 2017 is considered as the year to absorb all supply. 2018 will be the year for transformation of boom in 2019 and 2020. Research companies predicted building supply will boom resulting in new circle in two next years. Investors will carry out new projects when all buildings were absorbed.
Dang Phuong Hang, Managing Director of CBRE, expects that Grade A rental will maintain its increasing trend because of limited available supply from now until late 2019 or early 2020. Vacancy rates will also decrease slower because of Grade A’s higher rentals.
Grade B is expected to see more stable and healthy performance because of its small but more constant supply from now until 2019.
The market from 2018 - 2020 will still be a landlord’s market.

By PHAN LE - Translated by UYEN PHUONG

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