Riding out the storm

The line between Grade A and B space is now being blurred

Christopher Currie, head of landlord representation at CB Richard Ellis, said that Grade B office rents in Ho Chi Minh City had dropped by around 10-15 per cent over the last three to six months, and were now sitting at around $35-$45 per square metre per month.

“We’ll see Grade B prices soften even further, by another 10-15 per cent, by the end of the year to sit around the $30-$38 mark,” Currie told Vietnam Investment Review. Many tenants have been rationalising their expansion plans, sitting it out until rents soften, or looking into less central areas where rents are cheaper.

Although prices in existing Grade A buildings have remained relatively firm, the new supply will force landlords to lower their rents next year. Current rates for Grade A offices are between $60 and $70 per square metre per month. But these prices exclude service charges and tax.

The true net price can be as much as 20 per cent higher. There are approximately 80,000sqm of Grade A offices in Ho Chi Minh City, including at the Metropolitan, the Sun Wah, Saigon Centre, Saigon Tower and at Diamond Plaza. Next year will bring roughly 60,000sqm of new Grade A offices, through Centec Towers and Kumho Asiana Plaza.

“This 75 per cent increase will, in our opinion, cause prices to soften, as landlords will struggle to keep tenants from moving to the newer, more technologically advanced buildings,” said Currie.

He said that it had been 10 years since Grade A stock was brought onto the market, and there had been huge advances in construction technology. Some of the new Grade B buildings were now just as good as the existing Grade A properties.

Currie said that for some multi-national companies who had established their brands, a prime location was not necessarily essential. However, they would still need high-quality construction, professional property management, signage, parking and a good relationship with their landlords. They would not have to be located on Dong Khoi, Le Duan, Le Loi or Nguyen Hue streets.

“A more price-sensitive, market-savvy tenant is doing his or her homework, and for the first time in a few years there are options. The pendulum is swinging, and landlords slow to react will be faced with a different kind of vacancy problem,” he said.

According to CB Richard Ellis surveys of over 50 of the largest multi-national companies across the city in the last six weeks, most were refusing to pay the higher rents and were looking to downsize their central business district offices, signing short term leases or extensions and de-centralising back office operations. Most were fully aware of the new supply and were playing the waiting game.

“Many companies are asking why they’re being forced to pay $60 per square metre for Grade A offices in Ho Chi Minh City when they can have international-standard Grade A offices in Bangkok for $25 per square metre.
“There are obvious supply and demand answers for this, but given time we will see Grade A rents coming down to a more reasonable level,” said Currie.