The Vietnamese office market faces economic fluctuations on a global scale.
The Vietnamese office market faces economic fluctuations on a global scale.
In the coming period, a plentiful supply of new high-quality office spaces intensifies competition among buildings. Consequently, some investors have implemented favorable policies to attract and retain tenants.
CHALLENGES FROM GLOBAL ECONOMIC FLUCTUATIONS
According to Savills Vietnam, recent decreases in office demand are influenced by factors such as the trend of shifting supply to areas outside the central business districts, reevaluation of resources by some tenants post-pandemic, and changing needs.
Looking at the broader picture, the global office market is under significant pressure. Post-pandemic office leasing remains unstable, despite a gradual increase in the return-to-office trend.
The Vietnamese market, with its diverse structures and positive demand for office rental projects, exhibits some differences. However, confronting global impacts is unavoidable. Both major cities, Ho Chi Minh City (HCMC) and Hanoi, have developed irregularly and performed well in recent years, especially compared to cities with surplus supply in the region.
According to Mr. Troy Griffiths, Deputy Managing Director of Savills Vietnam, to accommodate the increasing FDI influx into Vietnam, office supply in Hanoi and HCMC needs diversification, especially in the Grade A segment, to enhance competitiveness.
"By 2026, the occupancy rate of Grade A and B projects is projected to increase by 6% annually, from the current 1.5 million square meters of net leasable area under standard conditions," forecasts the Deputy Managing Director.
The transformation and quality upgrade of older projects, along with the dynamic office leasing activities and the gradual cooling of supply growth, will likely reduce the vacancy rate to around 8% by 2025 after reaching a peak of 12% in the short term.
Commenting on the HCMC office segment, Mr. Troy Griffiths considers it an intriguing market undergoing a revitalization phase, promising considerable potential in the future as buildings on both sides of the Saigon River are gradually completed.
Most recently, two Grade A office projects in Thu Thiem contributed to the Grade A supply for the HCMC office market in Q3/2023. These projects have been particularly well-received by tenants in the financial and banking sectors.
"We observe only about 9 Grade A office projects in HCMC. The market holds great prospects based on macroeconomic factors such as commercial development, green building standards, and the growth of the domestic economy. To better understand rent fluctuations from now until 2026, we used three forecasting methods, including GDP/FDI forecasts, average database, and industry structure shifts," the analyst explains.
Accordingly, the average rent for Grade A and B offices is expected to be around USD 39/sqm/month by 2026, thanks to increasing supply.
Forecast chart for HCMC office rent prices until 2026. Source: Savills Vietnam Research and Consulting.
Facing challenges from the macroeconomic context, Ms. Hoang Nguyet Minh, Senior Director of the Commercial Leasing Department at Savills Hanoi, notes that a large number of businesses in Hanoi are dealing with financial difficulties. Tenants are cautious when making medium-term decisions. Therefore, in the office segment, investors are flexible in leasing policies and provide service incentives to support businesses in searching for and choosing workspaces.
For instance, investors are collaborating with leasing units to provide support packages for office construction costs. Considering the overall expenses that businesses need to incur for expansion or finding new premises, construction costs usually account for a significant proportion, including stages such as design, furniture arrangement, and construction. Typically, the time to complete an office can be up to two months. Therefore, construction costs are often seen as the most significant barrier that businesses face when deciding to expand or change office locations.
