Excessive supply leaves office demand flat

EVN Tower project

Take EVN for example, the state-owned electricity giant build two towers, 29 floors and 33 floors, respectively, on Cua Bac street in Hanoi as a hub for the company’s operations.

The towers were completed in December last year and offices went up for lease in the first quarter of 2014. Though many EVN subsidiaries have moved into the buildings, a great deal of space is still available.

Another case was VCCI Tower, located near key streets Le Duan, Tay Son and Dai Co Viet. While ranked a Grade A office building with rents starting at $25 per square metre per month, like EVN, most of the space is vacant.

According to CBRE, the Hanoi office leasing market blossomed in 2007, when no more than five per cent of office spaces were empty. Rents held stable at around $37.45/m2/month for Type A offices and $26-28/m2/month for Type B.

The rising number of newly constructed mixed-use complexes since the beginning of this year has put enormous pressure on the office rental market.

In the first half of this year, five towers entered Hanoi’s office leasing market, adding around 104,000 square metres to the city’s total. They include HANDICO, VCCI, Gelex, EVN, and PSID.

According to statistics from Savills Vietnam, the average Hanoi office rental has gone down from VND540,000/m2/month (around $26) in the second quarter of 2012 to VND374,000/m2/month (around $18) in the second quarter of this year. In particular, Grade A and B fell by 3 per cent and 1 per cent, respectively, compared to the first quarter this year.

As reported by Savills, office demand has reached 76 per cent, increasing by 2 per cent on-year. Despite higher demand, office space is selling miserably due to the huge amount of new space that has entered the market.

Savills’ Research and Consultancy senior manager Ngoc Thi Huong Giang said there be an additional 85,000 square metres available for lease from five new projects in the second half of this year, including Lotte Center Hanoi with more than half of that total.

In 2016, Hanoi will welcome 27 new building projects with more than 500,000 square metres, raising the total office space for lease to around 2 million square metres. Rising office demand is only expected at 65 per cent of this total.