Colourful property market fails to leave firms in a bright mood

Vietnam has never looked better for property owners

Market observers said rising rents were dangerous for the economy, particularly as they hinder competitiveness and corporate expansion.
Commercial property rents have shot up across the board, particularly in the office sector. There, property consultants forecast that rental rates will double in the next 18 months.
“We predict that office rents will peak in 18 months at more than $100 per square metre per month for Grade A space, with Grade B space reaching as much as $90 per square metre,” said Brett Ashton, managing director of Savills Vietnam.

Office rents in Ho Chi Minh City already topped $70 per square metre per month, a significant increase over the $45-50 per square metre seen late last year.
“We see true net prices in premium grade office buildings reaching $80 per square metre in 2008,” confirmed Chris Currie, associate director of Colliers International Vietnam.
Currie said that the Gemadept Building on Le Thanh Ton Street is currently quoting net rentals at $73 per square metre, excluding service charges and value added taxes.
“Also worth noting is the fact that Gemadept was three times over subscribed, so there is still demand, even at these prices,” said Currie.

Earlier this month, Rudolf Hever, research and consultancy manager of CB Richard Ellis, issued a fearless forecast that monthly rents per square metre at Grade A office buildings would reach $65-70 this year, prime retail space on ground floor would go for $200, serviced residences $40-45 and hotel room rates for $400-500 a night.
These predictions were backed up by Brett Ashton who claimed that retail rates in some department stores were already $200 per square metre for small tenants and larger tenants in street-front retail were paying as much as $150 per square metre in prime locations on Dong Khoi street in Ho Chi Minh City and in the area surrounding the Opera House in Hanoi.

“Hotel rates will likely reach $400-500 and on some nights last year, already achieved that,” said Ashton.
Property consultants attribute skyrocketing rents on a serious supply and demand imbalance.
“The entire real estate market is severely undersupplied in Ho Chi Minh City, whether it’s office, apartments, retail or hotels,” said Ashton.

Meanwhile, Rudolf Hever maintained that all property sectors were experiencing vacancy declining to zero, and there were queues to secure prime office, residential and retail space. In addition, building costs were rising between 30-40 per cent, leading to delays in construction and a further squeezing in supplies.
A number of large complexes are currently under construction in Ho Chi Minh City, including the Asiana Plaza, Happiness Square, Vietcombank Tower, Financial Tower and Centec Tower. All are only expected to open in 2009 or later. “Until the government licensing process, including land issues and construction licencing procedures, are made clearer and more efficient, supply will not increase and prices will continue to mushroom across all sectors,” said Ashton.

Colliers has forecast that the office market in Ho Chi Minh City would stabilise with the addition of around 1.5 million square metre of space. With the current stock of around 460,000 square metre, it could be another three to five years until the city reaches this level.