Capital city offices near full capacity

June 07, 2018 | 10:35
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Offices in the capital city of Hanoi, especially the top quality ones, are almost fully occupied due to the wave of foreign direct investment and the city’s improved infrastructure.
capital city offices near full capacity
While it may be difficult to find a vacancy in Hanoi’s rental office spaces, there is still room for quality transactions, photo Le Toan

Since 2012, office occupancy rates had been going through a quiet patch, only ever at around 70 to 80 per cent, but the segment’s performance has improved significantly of late. Since late last year, rental offices in the four inner city districts of Ba Dinh, Hoan Kiem, Dong Da, and Hai Ba Trung were reported as having 97 per cent occupation.

According to Savills Vietnam’s latest publication “Vietnam Office Outlook 2018”, average occupancy in Hanoi reached 92 per cent in 2017, while the gross monthly rent price reached $35.2 per square metre (sq.m), translating to a 2.6-per-cent increase on-year.

Do Thi Thu Hang, associate director of research at Savills Hanoi, said these figures were relatively high compared to regional peers and demonstrated the positive performance of the Hanoi office market.

Alex Crane, managing director of Cushman and Wakefield Vietnam, said the effective rents have increased quite significantly as landlords have been reducing incentives to new tenants.

Hang from Savills also pointed out that the supply of office space in Hanoi was now covering 1.6 million sq.m – 20 per cent lower than those in Bangkok, Kuala Lumpur, or Jakarta. As such, she added, “The rental office market still has room to develop in the city.”

Bui Trung Kien, associate director of commercial leasing for Savills Hanoi, said the cheaper offices, or Grade C, which are now 99 per cent occupied due to low rents, are losing their appeal to occupiers whose tastes are transforming, with more of an emphasis placed on the quality of the office space.

Kien added that many major office transactions in Hanoi originated from demands from tech firms to upgrade office spaces from Grades C or B to Grade A. This contributed to the remarkable performance of high-quality office buildings such as Lotte, CornerStone, PVI Tower, and Horizon Tower. In addition, economic growth, rising foreign direct investment (FDI), and an increasingly competitive business environment are all attracting both domestic and foreign investors and corporations, and thus elevating demand for office spaces in Hanoi.

Crane from Cushman and Wakefield Vietnam said that in addition to the traditional tenants of banks and tech companies, education facilities and logistics firms are also potential customers of office units in Hanoi, especially the more affordable ones in the west of the city.

Crane believed Grade A buildings are likely to remain in the city centre, while Grade B buildings are likely to stay in the western districts of Hanoi.

According to Nguyen Thi Hoai An, director of CBRE Vietnam, as there are not many new office building projects in Hanoi, the annual rent for Grade A buildings in Hanoi will increase by 3.5 per cent and the occupancy rate will reach 98 per cent by the end of the year.

With limited vacancies, Hanoi’s office market is now waiting for new quality commercial spaces offering opportunities for prestigious office developers.

Hoang Dieu Trang, senior leasing manager for Savills Hanoi, said Grade A offices were still in high demand for FDI enterprises in the city centre. Furthermore, once public transportation projects like the metro lines and ring roads were completed and put into operation, the central business districts would continue luring corporate tenants.

Thus, in order to stay aligned with market demands, office developers and landlords must focus on improving the quality of their offices in the city.

Trang outlined that new supplies of rental offices are expected to rise by 4-8 per cent per year from 2018 to 2019, before a sharp increase in 2020. This year, she said, is the buffering step for the boom of offices in the 2019-2020 period.

While agreeing with the growth potential of the office segment in Hanoi, Crane still advised investors to be acutely aware when looking at this sector due to yield compression, and warned that occupiers must be efficient in their operations in order to drive any financial benefits.

By Huu Tuan

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