As prices fall, offices attract tenants

According to CBRE, during the first quarter of 2013, Hanoi’s net absorption of office space increased to 16,000 square metres, a hefty 15 per cent higher compared to last year’s first quarter when net take-up reached 14,000sqm.

  This number can be mainly attributed to the Grade B office market, which amounted to more than 10,000 sqm.

Landlords of Grade B buildings in the West Hanoi have decreased their rents by 12 per cent quarter-on-quarter and by a staggering 29 per cent year-on-year.

  Decreases in rent clearly cut developers’ revenue margins, but this strategy seems to be paying off as over 80,000sqm net has been absorbed in the past 12 months and this trend seems to stay intact for at least 2013.

  “The mindset that vacancy is costlier than leased space has evidently been adopted by the landlords in the West Hanoi,” said Greg Ohan, director of office services at CBRE Vietnam.

  Overall, the Grade B asking rents steadily keep on going in the same downward direction. This trend started back in 2010 and there are currently no signs in the market that the rents are bottoming out as is currently the case in Ho Chi Minh City. The Grade B asking rents have dropped 7.3 per cent quarter-on-quarter and 18.8 per cent year-on-year. For Grade A this amounts to a plus of 1.25 per cent quarter-on-quarter but a 10.25 per cent decrease year-one-year. 

  The CBD witnessed significant changes in vacancy, with grade A jumping from 5 per cent to 24 per cent which can be fully contributed to the completion of the CornerStone Building, adding 26,500 sqm of net leasable area to Hanoi’s office stock. Based on its prime location and building quality CBRE expects strong demand for the CornerStone Building in the course of this year. 

  For the whole Hanoi Grade A office market, vacancy increased from 23 per cent to 30 per cent quarter on quarter. The Hanoi’s grade B office market saw a drop in availability from 22 per cent in the final quarter of last year to 19 per cent this quarter.

  Ohan forecasted that 490,000sqm of new supply would be delivered in the remaining nine months of this year, of which 400,000sqm in the second quarter. 

  “An important note that has to be made is that only 40 per cent is currently under completion period and as such one can assume that ‘only’ 160,000sqm is likely to be completed within the second quarter’s timeframe,” he added.

  According to CBRE, for any tenant with a lease expiry in 2013, the critical components of success are timing and speed. For occupiers considering the West, due to ongoing high take-up in the first quarter of 2013, many of the newer Grade A and Grade B buildings are beginning to experience rising occupancy levels. Therefore incentive packages will be gradually reduced, however, significant supply still remains.

  For tenants who prefer the CBD, it is unlikely to secure significant cost savings as landlords in the CBD have not decreased their rents as much as their competitors in the West. However, with major occupiers still moving West, CBRE expects an opportunity for occupiers in the CBD to capitalize on short term availabilities in key buildings.